8-1- 10 EQs (A) - 90%

Question 1

The market value of a firm’s outstanding common shares will be higher, everything else equal, if

a Investors have a lower required return on equity.

b Investors expect lower dividend growth.

c Investors have longer expected holding periods.

d Investors have shorter expected holding periods.

Answer 1

Ans. A

Investors have a lower required return on equity.

Investors value common shares more highly if they have a lower required return because then they apply a lower discount rate to the expected future dividend stream of the company.

Question 2

Define common fixed costs shown on a responsibility accounting format Income Statement.

Answer 2

Common fixed costs are incurred at one level for the benefit of two or more segments.

A common cost arises from operating a facility, operation, or activity that is shared by two or more managers.

Question 3

Implementation of a government’s monetary policy in most major industrial countries is managed by

a The central bank.
b The national government.
c Commercial banks.
d Bond market traders.

Answer 3

Ans. A. the central bank

The central bank’s most important function is to regulate the money supply in accordance with policies established to promote the nation’s economic well-being. Monetary policy seeks to provide a supply of money, employment, and a relatively stable price level.