1. The value of retained earnings on the corporate balance sheet represents the amount of earnings:
A. not paid out in dividends this period.
B. that are being held in cash.
C. over and above corporate income taxes.
D. reinvested in the firm since its inception.
2. A company is about to issue 1,000 new shares of stock at a market price of $33 per share. If the par value per share is $4, the increase in capital surplus from this stock issue will be:
A. $33,000.
B. $4,000.
C. $29,000.
D. $32,000.
3. Which one of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend?
A. The preferred stock should be selected because its after-tax yield is 0.17% higher.
B. The preferred stock should be selected because its after-tax yield is 0.80% higher.
C. The bond should be selected because its after-tax yield is 0.17% lower.
D. The bond should be selected because its after-tax yield is 1.3% higher.