If a Corporation Uses Retention of Earnings to Finance the Purchase

question 2

Multiple Choice

If a corporation uses retention of earnings to finance the purchase of property instead of issuing equity securities, then

• A) it will have a higher debt/equity ratio.
• B) it will pay more dividends.
• C) leverage is being used.
• D) a company's earnings per share will decrease.

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Definitions:

Barbara Tversky

A cognitive psychologist known for her work in spatial cognition and cognitive maps.

Systematically Distorted

Refers to information or communication that has been altered in a consistent and predictable manner, often leading to misconceptions or biases.

Heuristics

Simple, efficient rules, often hard-coded by evolutionary processes, that help in making decisions, forming judgments, or solving problems.

Visual Image

A mental picture or representation of an object or scene that is generated by the brain.