9.3 Learning Objective 9-3
1) Earnings per share is the amount of a company's net income divided by the par value of its stock.
2) Earnings per share is a standard measure of operating performance that applies to companies of different sizes and from different industries.
3) The times-interest-earned ratio is calculated by dividing operating income by operating expenses.
4) The times-interest-earned ratio indicates the company's ability to pay interest expense.
5) A disadvantage of using bonds instead of stock as a method of long-term financing is that with bonds:
A) interest must be paid regardless of the level of earnings.
B) interest expense is tax deductible.
C) bonds do not dilute stockholders' proportionate ownership.
D) issuing bonds results in higher earnings per share than issuing common stock.
6) A disadvantage of issuing stock instead of debt is that stock:
A) creates no interest expense which must be paid.
B) is less risky to the issuing corporation.
C) creates no liabilities for the corporation.
D) generally results in lower earnings per share.
7) The financing option that has the lowest risk to a company is financing by:
A) retained earnings.
B) issuing stock.
C) issuing bonds payable.
D) issuing notes payable.
8) The financing option that creates no liabilities or interest expense is financing by:
A) issuing notes payable.
B) debt.
C) issuing stock.
D) issuing bonds payable.
9) The debt ratio is computed by dividing:
A) total assets by long-term liabilities.
B) total assets by total debt.
C) total debt by total assets.
D) long-term liabilities by total assets.
10) If a company wants to maximize earnings per share it would issue:
A) stock or bonds, depending on the tax rate.
B) stock or bonds, depending on the interest rate.
C) bonds instead of stock.
D) stock instead of bonds.