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

What is working capital, What is working capital? Working capital compr...

What is working capital? Working capital comprise of the current assets of the firm.

Effective annual rate, You are interested in saving money for your first ho...

You are interested in saving money for your first house. Your plan is to make regular deposits into brokerage account which will earn 14%. Your first deposit of $5,000 will be made

Irr and npv, (a) Lonesome Gulch Mines has a standard deviation of 42% per ...

(a) Lonesome Gulch Mines has a standard deviation of 42% per year and a beta of 0.10.  Amalgamated Copper has a standard deviation of 31% a year and a beta of 0.66.

Floating rate notes (frns), Floating Rate Notes (FRNs): When interest r...

Floating Rate Notes (FRNs): When interest rates are high and the general outlook is either stable or indicating the possibility of a downward trend in return, then an investor

Examine about the risk-based auditing, Examine about the Risk-based auditin...

Examine about the Risk-based auditing A risk based audit will be reviewing the risk management process and considering main risks of the organisation as a whole. Risk manage

Determine the economic viability, The purpose of this financial analysis is...

The purpose of this financial analysis is to determine the economic viability during the last five years of the Lance Company and to advise our client on whether the acquisition of

Factors influencing capital structure, FACTORS INFLUENCING CAPITAL STRUCTUR...

FACTORS INFLUENCING CAPITAL STRUCTURE/DETERMINANTS OF THE CAPITAL STRUCTURE 1. Financial leverage (or) Trading on equity it is the make use of long term fixed interest bea

Dividend payout ratio, Dividend Payout Ratio The percentage of earnings...

Dividend Payout Ratio The percentage of earnings or profit paid to shareholders in dividends. Computed as:   The payout ratio gives an idea about how well earning

Calculate the weighted average cost, XYZ Energy Solutions plc (XYZ) has spe...

XYZ Energy Solutions plc (XYZ) has spent €12m designing and developing a new generation of domestic air source heat pumps. These new domestic heat pumps can easily be fitted to exi

Understanding financial metrics and business risk, Controlling is an essent...

Controlling is an essential management function as efficient control mechanisms ensure that the performance of the company increases over time through the incorporation of feedback

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