71. Which of the following could describe the book value of an entity?
A. The amount the shareholders paid for the shares.
B. The amount the shares are worth in the market.
C. The minimum amount an entity is worth.
D. The maximum amount that a shareholder will receive on the liquidation of the entity.
72. For which of the following organizations would the book value be a useful proxy for the worth of the organization?
A. A tool and die manufacturer
B. A computer software developer
C. An accounting firm
D. A pharmaceutical company
73. For which of the following organizations would the market value of the entity be readily available?
A. A public company
B. A private company
C. A partnership
D. A not-for-profit organization
74. BioPlus is a firm in the biotech industry. They have 2 million shares outstanding with a recent market price of $15.00. Their total assets are $18 million and total liabilities are $8 million. The average price-to-book (PB) ratio for the biotech industry is 5. Which of the following statements about BioPlus is true?
A. Their PB ratio is below the industry average and that indicates that the shares are an attractive investment.
B. Their PB ratio is below the industry average and that indicates that the shares are an unattractive investment.
C. Their PB ratio is above the industry average and that indicates that the shares are an attractive investment.
D. Their PB ratio is above the industry average and that indicates that the shares are an unattractive investment.
Market value: 2 million shares X $15 = $30 million. Book value: $18 million - $8 million = $10 million. PB = $30 million/$10 million = 3
75. Earnings per share is computed using which of the following measures?
A. The weighted average of the number of common shares outstanding during the year.
B. The weighted average of the number of preferred and common shares outstanding during the year.
C. The number of common shares outstanding at the end of the year.
D. The number of common and preferred shares outstanding at the end of the year.
76. Allcan Limited has 20,000 common shares issued and outstanding at January 1, 2014. On July 1 the company sold an additional 10,000 common shares for proceeds of $100,000. Net income for the year was $30,000. What would the earnings per share be?
A. $1.00
B. $1.20
C. $1.50
D. $4.00
$30,000/[($20,000 )+($10,000 x 6/12)] = $1.20
77. Kantimo Corporation has 120,000 shares of common stock outstanding throughout the year. It also had 20,000 shares of $2 preferred stock, cumulative and non-participating, outstanding throughout the year. During the year, the company met all required dividend payments. If the company's net income were $95,000, what would be the earnings per share?
A. $0.46
B. $0.39
C. $0.68
D. $0.79
Preferred dividends = 2 x 20,000 = 40,000; EPS = (95,000 - 40,000)/120,000 = 0.46
78. Which of the following must be deducted from net income to calculate the return on common shareholders' equity?
A. Dividends paid to common shareholders
B. Dividends paid to preferred shareholders
C. Interest expense
D. Income tax expense
79. Which of the following must be deducted from net income to calculate earnings per share?
A. Dividends paid to common shareholders
B. Dividends paid to preferred shareholders
C. Interest expense
D. Income tax expense
80. Which of the following represents the amount of net income attributable to each individual share of common stock?
A. ROE
B. EPS
C. DPS
D. ROA