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Dividend Payout Ratio, Price/Earnings Ratio, Financial Leverage

Choose the correct answer:

1. The dividend payout ratio describes:
a. the proportion of earnings paid as dividends.
b. dividends as a percentage of the price/earnings ratio.
c. the percentage change in dividends this year compared to last year.
d. the relationship of dividends per share to market price per share.

2. The price/earnings ratio:
a.can be used to determine the cash dividend to be received during the year.
b.is a measure of the relative expensiveness of a firm's common stock.
c. is calculated by dividing the earnings multiple by net income.
d. does not usually change by more than 1.0 (e.g. 8.2 to 9.2) during the year.

3. When a firm has financial leverage:
a. risk is greater than if there isn't any leverage.
b. ROI will be greater than ROE.
c. the firm will always have a higher ROE than it would without leverage.
d. ROI will usually be less than it would be without leverage.

Solution Preview

1. a. the proportion of earnings paid as dividends
Dividend payout ratio = ...

Solution Summary

The solution determines the dividend payout ratio, price/earnings ratio, and financial leverage.

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