How Would the Declaration of a Cash Dividend Affect the Calculation

question 46

Multiple Choice

How would the declaration of a cash dividend affect the calculation of a company's price-earnings ratio? (Hint: Do not consider any change in the market price of the stock that might occur because of the declaration of the dividend. )

• A)It will have no effect on the price-earnings ratio.
• B)The effect depends on the market price of the stock at the time the dividend is declared.
• C)It will decrease the price-earnings ratio.
• D)It will increase the price-earnings ratio.

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Definitions:

Net Profit Margin Ratio

A financial metric that calculates the percentage of net income generated from a company's revenue.

Interest Revenue

Income earned from investments, savings, or credit extended to others, calculated as a percentage of the principal sum.

Gross Profit Percentage

A financial metric that represents the proportion of money left over from revenues after accounting for the cost of goods sold.

Net Profit Margin

A profitability ratio calculated by dividing net income by revenue, expressing how much profit a company makes for every dollar of sales.