If an entity has a higher dividend-payout ratio. then. if all else is equal, it will have a:
Answer(s): A
The higher the dividend-payout ratio, the sooner retained earnings are exhausted and the entity must seek external financing. Assuming the name investments are undertaken, the result is a higher marginal coot of capital because lower-cost capital sources will be used up earlier.
If two entities, entity' - and entity Y. are alike in all respects except that entity X employs more debt financing and less equity financing than entity Y does. which of the following statements is true?
Given that entity X is more highly leveraged, it has greater fixed financing charges than entity Y. Interest payments are fixed financing charges, but ordinary share dividends are not. As a result, entity X will be more risky and therefore will have a more volatile net income stream than entity Y. if other factors are, constant.
The market value of an entity's outstanding ordinary shares will be higher, everything else equal, if investors:
The dividend growth model is used to calculate the cost of equity. The simplified formula is R is Thus, when investors have a lower required return on equity, the denominator is smaller, which translates into a higher market value.
Assume that nominal interest rates just increased substantially but that the expected future dividends for an entity over the long run were not affected. As a result of the increase in nominal interest rates, the entity's share price should
Answer(s): B
The dividend growth model is used to calculate the price of a share.
The investment opportunity schedule IOS) shows, in rank order, how much money the entity would invest at different rates of return. Such schedules can be drawn only for a set of projects that:
Answer(s): D
An IOS schedule is drawn for a set of independent projects. The decision to be made is whether to accept or reject each project without regard to other investment opportunities. Thus, the cash flows of one independent project are not influenced by those of another. Independence should be distinguished from mutual exclusivity.
Post your Comments and Discuss IIA IIA-CIA-PART3-3P exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the IIA-CIA-PART3-3P content, but please register or login to continue.