Which of the Following Statements Incorrectly Describes Earnings Per Share

question 72

Multiple Choice

Which of the following statements incorrectly describes earnings per share?

• A)Earnings per share are per common share.
• B)An increase in the market price per common share does not result in a decrease in earnings per share.
• C)An increase in dividends per share results in an increase in earnings per share.
• D)The reissue of treasury stock decreases earnings per share.

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Definitions:

Fixed Cost

Business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance premiums.

Financial Leverage

The use of borrowed funds with a fixed cost in an attempt to increase the returns to shareholders by magnifying investment gains or losses.

EBIT

Earnings Before Interest and Taxes, a financial metric that calculates a firm’s profit excluding interest and income tax expenses.

Variable Cost

A cost that varies directly with the level of production or volume of output, as opposed to fixed costs, which remain constant regardless of activity level.