Orion Inc Had a Bad Year

question 144

Multiple Choice

Orion Inc. had a bad year. Sales were down throughout its industry but Orion was particularly hard hit. Its earnings fell by 30% compared to the previous year on a revenue decrease of 20%. Nevertheless the firm paid a dividend that was 30% larger than the previous year's. Management is probably:

• A) matching the 30% earnings drop with an offsetting 30% dividend increase.
• B) admitting it's done a bad job and paying stockholders to make up for it.
• C) using the signaling effect to tell shareholders that management has confidence in the firm's future earning capability.
• D) trying to get money in their own pockets before the firm fails, because management usually holds substantial stock themselves.

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Definitions:

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A measure of the number of individuals living in a unit area, usually per square kilometer or mile, indicating how crowded an area is.

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Graduated Commission

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