41.The likelihood that a company will not be able to make debt or interest payments when they come due is
a.financial leverage
b.insolvency
c.liquidity
d.default risk
42.The dividend payout ratio is
a.dividends / retained earnings
b.dividends paid / dividends declared
c.dividends / net income
d.dividends / cash
43.The dividend payout ratio yields information about the
a.portion of net income that is being distributed to stockholders in cash
b.rate of return that an investor has enjoyed on his/her common stock
c.fluctuation in interest rate risk that has occurred in the past year
d.degree of financial leverage that the firm is using
44.The dividend payout ratio indicates
a.the degree of financial leverage used by the firm
b.the return on investment earned by the investor this period
c.whether more shares should be purchased in the future
d.the portion of current earnings paid out in dividends
45.In general, what relationship would you expect between the dividend payout ratio and the nature of the business?
a.retailing companies would have a high ratio while manufacturers would have a low ratio
b.high profit companies would have a low ratio while low profit companies would have a high ratio
c.new companies would have a high ratio while old companies would have a low ratio
d.high growth potential firms would have a low ratio while low growth potential companies would have a high ratio
46.An increase in financial leverage would be riskiest for which of the following companies?
a.a company with a high dividend payout
b.a company with a negative return on assets
c.a company with a low debt to assets
d.a company with a high market to book value ratio
47.Amalgamated, Inc. reported net income of $20 million. Total liabilities and common stock remained unchanged. No dividends were paid. As a result,
a.financial leverage will increase
b.financial leverage will decrease
c.financial leverage will remain unchanged
d.the effect on financial leverage cannot be determined
48.Which of the following would be the most useful to help an investor assess a company's default risk?
a.debt to total assets ratio
b.dividend payout ratio
c.return on assets
d.market to book value ratio
49.Debt covenants protect the interests of which of the following parties?
a.employees
b.companies
c.stockholders
d.creditors
50.Which of the following would be an appropriate interpretation of a current ratio of 1.76?
a.the company earned $1.76 for every dollar of assets
b.the company has $1.76 of current assets for every dollar of current liabilities
c.the company's debt is 176% of its capital structure
d.the company has $1.76 of current assets for every dollar of total assets
51.Which of the following is a measure of a firm’s economic value?
a.return on assets
b.financial leverage
c.dividend payout ratio
d.market to book value ratio
52.Which of the following is a measure of company value?
a.current ratio
b.debt-equity ratio
c.return on assets
d.market to book
53.Sanitex Corporation has a market to book ratio of 1.10. This implies that
a.each dollar of investment is worth $1.10
b.a purchase of the company's stock today will yield a return of 10%
c.each stockholder will receive a dividend of $0.10
d.for every $1.00 in equity, the company has $1.10 in debt
54.What is Magic Co.'s market to book value ratio, given the following information about the company:
Total stockholders' equity$2,800,000
Number of common shares$224,000
Stock price per share$30
Total assets$4,480,000
a.2.40
b.12.50
c.1.60
d.0.42