Dilution of Earnings Occurs Because

question 50

Multiple Choice

Dilution of earnings occurs because

• A) a new issue of common stock creates more shares outstanding that reduces earnings per share temporarily.
• B) the company suffers a decline in earnings aftertaxes.
• C) the investment dealer collects an underwriting fee.
• D) all of the other answers are correct

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Definitions:

Prepaid Expenses

Costs paid for in advance of receiving the benefit, such as insurance or rent, which are recorded as assets initially.

Free Cash Flow

The amount of cash a company generates after accounting for capital expenditures, indicating the ability to repay creditors or pay dividends and interest to investors.

Accounts Payable Balance

The total amount of money owed by a company to suppliers for goods and services purchased on credit.

Payments To Suppliers

Money transferred to suppliers for goods or services received.