Determine that the cost of equity is zero or not, Financial Management

Assignment Help:

If dividends paid to common stockholders are not legal obligations of a corporation, is the cost of equity zero?  Describe your answer.

Even though common stockholders do not comprise a contractual claim on dividends the funds supplied through stockholders absolutely have a cost.  Equity investors are paid last and thus they are taking the utmost risk among all the suppliers of capital.  If the company does not get a higher rate of return on equity funds to compensate for the higher risk taken by equity investors, than the price of the stock will fall and hence the value of the firm.


Related Discussions:- Determine that the cost of equity is zero or not

Define forward exchange rate will be an unbiased predictor, Explain the con...

Explain the conditions under which the forward exchange rate will be an unbiased predictor of the future spot exchange rate. Answer:  the conditions when forward exchange rate

Calculate the companys horizon value, A. Mitt starts Examine Your Zipper In...

A. Mitt starts Examine Your Zipper Incorporated ("XYZ") in 2012 by selling common stock of $12,000,000. He promises the investors in his company a 15% return on their capital. B

Saving and lone assocition, what is saving and lone function in ethiopian c...

what is saving and lone function in ethiopian context

Introduction of financial management, Introduction of Financial Management ...

Introduction of Financial Management Accounting has evolved and emerged within response to the social and economic needs of the society. The procedure of book keeping (mainten

Calculate rate of return on investment in terms of us dollar, Mr. James K. ...

Mr. James K. Silber, an avid international investor, just sold a share of a French company, for FF50. The share was bought for FF42 a year ago. The exchange rate is FF5.80 each U.S

Case Study: Trade Finance and Risk, Can Engineering Tech effectively protec...

Can Engineering Tech effectively protect its interests and assure payment?

Leveraged buyout (lbo), Leveraged Buyout (LBO) Acquisition of an organi...

Leveraged Buyout (LBO) Acquisition of an organization through the accumulation of 70 % or more of the organizations total capitalized debt.

Explain factoring and term loan financing, A factoring company has offered ...

A factoring company has offered a one-year agreement with Glub Ltd to both manage its debtors and advanced 80 per cent of the value of all its invoices immediately a sale is invoi

Financial Analysis of Carrefour & Tesco Supermarkets, comparative analysis ...

comparative analysis on these two food retailing giants

What is compound interest, What is compound interest? Compare compound inte...

What is compound interest? Compare compound interest to discounting. Compound interest takes place when interest is earned on interest and on the original principal of an inves

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd