If the Expected Future Earnings of a Company Goes Up

question 158

Multiple Choice

If the expected future earnings of a company goes up, you would expect the price of its stock to

• A) rise.
• B) fall.
• C) be unaffected.
• D) fall to zero.

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Definitions:

Dividend Payout Ratio

The fraction of net earnings a firm pays to its shareholders as dividends, expressed as a percentage.

Capital Budget

A budgeting process that entails the evaluation and planning of expenditures for projects and investments that are significant in scope and that will be amortized over several years.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, although the market capitalization remains the same.

Total Market Value

The combined value of all shares of stock, bonds, or other securities issued by a company, calculated by multiplying the current price per share by the total number of shares outstanding.