At the Beginning of the Current Year, Elite Corporation Had

question 68

Multiple Choice

At the beginning of the current year, Elite Corporation had 200,000 shares of $1 par ordinary share outstanding and had retained earnings of $4,800,000. During the year, the company earned $1,675,000, declared a 10% stock dividend when the price of share was $28 per share, and paid a year-end cash dividend of $3 per share. (The cash dividend was paid after the stock dividend had been distributed.) What was Elite Corporation's retained earnings at the end of the year?

• A) $5,915,000.
• B) $5,255,000.
• C) $5,311,000.
• D) $3,580,000.

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Definitions:

Capital Structure

Refers to how a firm finances its overall activities and growth through different sources of funds, such as debt and equity.

M&M Proposition I

A theory stating that, in a perfect market, the value of a firm is unaffected by how it is financed, regardless of the debt-to-equity ratio.

Capital Structure

Refers to the way a corporation finances its assets through a combination of equity, debt, or hybrid securities.

M&M Proposition I

Modigliani and Miller's principle suggesting the irrelevance of financial leverage on a company's valuation in an ideal market.