Question Details

Dawn Alive reported the following for 2010



1.	A summarized income statement for Leveraged Inc. is presented below.

Sales	$1,000,000
Cost of Sales	   600,000
Gross Profit	$  400,000
Operating Expenses	   250,000
Operating Income	$  150,000
Interest Expense	    30,000
Earnings Before Tax	$  120,000
Income Tax	    40,000
Net Income	$   80,000

The degree of financial leverage is:
a.	$150,000/$30,000
b.	$150,000/$120,000
c.	$1,000,000/$400,000
d.	$150,000/$80,000
e.	$400,000/$120,000



	2.	Dawn Alive reported the following for 2010.
Ending market price	$40.75
Earnings per share:	
Basic 	 2.50
Diluted	 2.08
Dividends per share	 1.10

The price/earnings ratio and dividend payout were:
a.	19.59 and 52.88%
b.	16.30 and 52.88%
c.	16.30 and 44.00%
d.	19.59 and 44.00%
e.	37.04 and 52.88%


	3.	The best dividend payout ratio:
a.	approximates 50%
b.	continues at the same level as was historically paid
c.	is similar to the industry average
d.	is higher than that of competitors
e.	does not follow any rule of thumb for dividend payout



 
	4.	The following data were gathered from the annual report of Desk Products.

Market price per share	$30.00
Number of common shares	10,000
Preferred stock, 5%	
$100 par	$10,000
Common equity	$140,000

The book value per share is:
a.	$30.00
b.	$15.00
c.	$14.00
d.	$13.75
e.	none of the answers are correct



	5.	Which of the following is not a reason to interpret book value with caution?
a.	Land may be worth more than it cost.
b.	Depreciable assets may be held.
c.	Investments may be worth more than their purchase price.
d.	Patents may have a high market value.
e.	All of the answers are correct.




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