Art Supplies Has a Net Income of $148,500

question 51

Multiple Choice

Art Supplies has a net income of $148,500. The firm has $1.15 million in assets and $450,000 in liabilities. What is the return on equity?

• A) 13.87 percent
• B) 15.09 percent
• C) 16.44 percent
• D) 18.06 percent
• E) 21.21 percent

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Definitions:

Bird-In-The-Hand Theory

Assumes that investors value a dollar of dividends more highly than a dollar of expected capital gains because the dividend yield component, D1/P0, is less risky than the g component in the total expected return equation rs = D1/P0 + g.

Dividend Yield

A financial benchmark that illustrates the relation between a company's per annum dividend issuance and its share price.

Required Return

The expectancy of financial gain on an investment, considering its risk profile, set by investors as a benchmark.

Dividend Irrelevance Theory

A theory suggesting that dividend policy has no effect on a company's value or its stock price.