Legal obligations of corporation is the cost of equity zero, Financial Management

Assignment Help:

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

Even though common stockholders don't have a contractual claim on dividends the funds supplied by stockholders definitely have a cost.  Equity investors are paid last and thus they are taking the greatest risk among all the suppliers of capital.  If the company doesn't earn a enhance rate of return on equity funds to compensate for the higher risk taken by equity investors, the price of the stock will drop and so the value of the firm. 

 


Related Discussions:- Legal obligations of corporation is the cost of equity zero

Strong form level of efficiency, Strong form level of Efficiency This l...

Strong form level of Efficiency This level states that price reflects all the available public and private information (past, present and future information). If the hypothesis

What was the value of each person investment, Joe and Sam each invested $20...

Joe and Sam each invested $20,000 in the stock market. Joe's investment increased in value by 5% per year for 10 years. Sam's investment decreased in value by 5% for 5 years and th

China emerged as second most significant recipient of fdi, How would you de...

How would you describe the fact that China emerged as the second most significant recipient of FDI after the United States in recent years? Answer: China attracted a large deal o

Difference between a parallel loan and back to back loan, Describe the diff...

Describe the difference between a parallel loan and a back-to-back loan. Answer:  A parallel loan contains four parties.  One MNC (multinational company) borrows and re-lends to

Difference euronote market and euro medium term note market, What is the di...

What is the difference between the Euronote market, the Euro-medium-term-note market, and the Eurocommercial paper market? Answer:  Euronotes are short-term notes guarantees by

Standard communication protocol used for the internet, Question: (a) W...

Question: (a) What is a computer virus? List and explain the different type of computer viruses? (b) List 4 steps which you can use to minimize the chances of being infec

Enumerate the securities and investment analysis, Enumerate the Securities ...

Enumerate the Securities and Investment Analysis Purchase of bonds, stocks and othersecurities involve analysis and techniques which are highly specialized. An investorshoul

Analysing performance through ratios, Analysing performance through ratios ...

Analysing performance through ratios Ratios are an effective way of analysing financial statements. A ratio is 2 figures compared to each other and can either be in absolute te

State the peter drucker rules for acquisitions, Peter Drucker gave five rul...

Peter Drucker gave five rules for acquisitions to be more successful. Contribution e.g. the acquirer can add value to the target organisation other than just providing mone

Explain savings and loan associations, Savings and loan associations Hi...

Savings and loan associations Historically savings along with loan associations (S&Ls) and thrift institutions have concentrated mostly on residential mortgages by acquiring fu

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