Suppose You Work for the CFO of Danforth, Inc

question 236

Multiple Choice

Suppose you work for the CFO of Danforth, Inc. He believes sales and operating income will be sharply higher each year for the foreseeable future. If he seeks to maximize earnings per share, he should _____________. (Assume there are no taxes.)

• A) Increase the firm's debt to equity ratio.
• B) Increase the firm's debt to equity ratio if the firm's EBIT will remain below the break-even (comparing levered to unlevered) level of EBIT.
• C) Decrease the firm's debt to equity ratio.
• D) Not change the firm's debt to equity ratio.
• E) Decrease the firm's debt to equity ratio if the firm's EBIT will remain below the break-even (comparing levered to unlevered) level of EBIT.

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Definitions:

Annual Dividend

The total dividend payment a shareholder receives from a stock or investment in a year, expressed on a per-share basis.

Market Value

The instant price at which transactions for a service or asset can be made.

Required Return

The minimum yearly interest rate that entices both individuals and companies to invest in a specific security or endeavor.

Share Dividend

A dividend payment made in the form of additional shares rather than a cash payout, often opted by a company to conserve cash.