As of December 31, 2005, Two Otherwise Identical Companies in the Same

question 43

Multiple Choice

As of December 31, 2005, two otherwise identical companies in the same industry, East Co. and West Co., have dividend payouts of 20% and 40%, respectively. Looking forward one year, which outcomes are least likely?
I. East Co. requires debt financing.
II. West Co. increases its dividend payout.
III. West Co.'s share price is twice that of East Co.
IV. East Co. repurchases outstanding shares.

• A) I and II
• B) II and IV
• C) I, II and III
• D) II, III and IV

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Definitions:

Cost Plus Pricing

A pricing strategy where the selling price is determined by adding a specific markup to a product's unit cost.

Monopolist

An entity that has exclusive control over the supply of a particular product or service, and thus the power to influence the market price.

Marginal Revenue

The supplementary income earned from the sale of one extra unit of a good or service.

Pink Flamingo

a brightly colored bird known for its long legs and neck, often associated with decorative lawn ornaments in popular culture.