Commerce Accountancy · Economics
Equity Shares and Capital
424 Questions
Equity shares and capital topics deal with corporate share issuance, forfeiture rules, dividend distributions, and yield calculations. Questions require an understanding of financial instruments like preference shares and call options. These concepts are essential for accountancy and commerce examinations.
Share valuationDividend yieldPreference sharesShare forfeitureCapital structure
Equity Shares and Capital Questions
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Earnings Per Share
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Computes the excess of market value of the firm over total historical investments
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Computes the return to shareowners that exceeds the minimum return on investment that shareowners require
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B and C
B
Correct answer
Explanation
Market Value Added (MVA) specifically measures the excess of the market value of a company over the capital invested in it. MVA = Market Value of Firm - Total Capital Invested, showing how much value management has created beyond what investors originally contributed. Option C describes Economic Value Added (EVA), which is different from MVA.
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most widely quoted financial measures of performance
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monetary unit return to the investor from holding the organization’s common stock
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All Answers are Correct
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= (Net income – preferred dividends) ? weighted average number of shares outstanding
C
Correct answer
Explanation
Earnings Per Share is indeed the most widely quoted financial performance measure, represents the monetary return to common shareholders, and is calculated as (Net Income - Preferred Dividends) divided by weighted average shares outstanding. Since all three statements are true, option C is correct. EPS is a fundamental metric that investors and analysts use universally to compare profitability across companies.
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Net income ? Common Equity
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Dividends per share / market price per share
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Earnings before Interest & Taxes / Sales
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Dividends per share / market price on toatal share
B
Correct answer
Explanation
The Dividend Yield Ratio is specifically calculated as Dividends Per Share divided by Market Price Per Share, showing the percentage return an investor receives from dividends relative to the stock price. This ratio helps income-focused investors evaluate the cash return from their investment. Option A describes Return on Equity, Option C is Operating Margin, and Option D contains a typo ('toatal' instead of 'total').
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PE/EPS
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EPS/PE
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(EPS/PE)*100
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PE*EPS
D
Correct answer
Explanation
The PE ratio (Price-to-Earnings) is calculated as Price divided by EPS. Rearranging this formula gives Price = PE × EPS. This is the fundamental relationship between share price, PE ratio, and earnings per share.
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fact
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fiction
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almost fact:The IPO was in 2004, but shares went for $400.
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almost fact:It is actually in 2000.
B
Correct answer
Explanation
Google's IPO did occur in 2004, but the offering price was \$85 per share, not \$40. The stock opened at \$100 on the first day of trading. Therefore, option B (fiction) is correct because the \$40 figure is wrong. Option C's $400 claim is also incorrect.
B
Correct answer
Explanation
Different exchanges establish their own lot sizes based on local market conventions and contract specifications. For example, NSE (India) and NYSE (USA) have different lot sizes for the same security due to varying market structures and regulatory requirements. Lot standardization varies across global exchanges.
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Equity per share
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Earnings Per Share
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Equity profits sum
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Earnings profits sum
B
Correct answer
Explanation
EPS stands for Earnings Per Share. It's a key financial metric calculated by dividing a company's net income by the number of outstanding shares. It shows how much profit the company generates for each share of stock. The other options are not standard financial abbreviations.
B
Correct answer
Explanation
Stock split divides each existing share into multiple shares, reducing price per share proportionally while keeping total market capitalization unchanged. It does not create new equity or increase the company's capital base - only the number of outstanding shares changes.
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Fringe Benefits
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Bonus
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Salary
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Perks
A
Correct answer
Explanation
ESOPs are classified as fringe benefits - additional compensation beyond regular salary and wages. They're not direct salary, not typically considered bonuses (which are one-time payments), and 'perks' is too informal a term for this structured compensation mechanism.
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Earnings Per Share
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Earning Permanent Share
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Earnings Peak Share
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Earnings Past Share
A
Correct answer
Explanation
EPS stands for Earnings Per Share, a key financial ratio showing company profit per outstanding share. Options B, C, and D use incorrect words like 'Permanent', 'Peak', and 'Past'.
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Earnings Per Share
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Expenditure Per Share
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Equity Per Share
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Expenditure & Profit Share
A
Correct answer
Explanation
EPS stands for Earnings Per Share, a key financial metric calculated as net income minus preferred dividends, divided by outstanding common shares. It measures profitability per share and is used in P/E ratios. Options B, C, and D are incorrect expansions.
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Earnings Per Share
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Expenditure Per Share
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Equity Per Share
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Expenditure & Profit Share
A
Correct answer
Explanation
EPS stands for Earnings Per Share, a key financial ratio calculated by dividing a company's net income (minus preferred dividends) by the number of outstanding common shares. It's used to measure profitability on a per-share basis and is important for investors comparing companies.
B
Correct answer
Explanation
Dividend per share is 9% of Rs. 20 = Rs. 1.80. The man wants this Rs. 1.80 to represent a 12% return on his investment (Market Value). So, 0.12 * MV = 1.80, which gives MV = 1.80 / 0.12 = 15. Other values do not yield a 12% return.
D
Correct answer
Explanation
A 12% stock means a Rs.100 face value yields Rs.12. If the market yield is 10%, then 10% of the Market Value = Rs.12. Market Value = 12 / 0.10 = 120. Thus, the stock is quoted at 120.
C
Correct answer
Explanation
Dividend per share = 15% of Rs.150 = Rs.22.50. The man gets a 10% return on his investment price (P). So, 10% of P = 22.50. Solving for P gives P = 22.50 / 0.10 = Rs.225. Other options do not satisfy the 10% yield requirement.