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

Baumol sales max theory, critically appraise baumol max. theory as an alter...

critically appraise baumol max. theory as an alternative objective of the firm

Estimate the total rate of return, Question: Explain: (a) the advant...

Question: Explain: (a) the advantages and disadvantages, to a company, of debt finance over equity finance; (b) the reasons why a company may choose to issue preference s

Exchange rate or currency risk, A bond whose payments are made in for...

A bond whose payments are made in foreign currency has unknown cash flows in domestic currency. This is because the cash flows are dependent on the exchange rate

Explain the sharpe performance measure, Explain the concept of the Sharpe p...

Explain the concept of the Sharpe performance measure. Answer:  The Sharpe performance measure abbreviated as SHP is a risk-adjusted performance measure. It is denoted as the mea

What is the benefits of divestment, What is the Benefits of divestment ...

What is the Benefits of divestment ¸ Releases cash tied up to finance more promising opportunities. ¸ Reduces diversification and complexity of a group in case of a demerger

Accrued income, Income that is received in a fund or by company by providin...

Income that is received in a fund or by company by providing a service or selling a product, but still has to be received. Mutual funds or other pooled assets that build up income

The time value of money , Calculate the present value and determine the npv...

Calculate the present value and determine the npv, Financial Management. Assume today is 3 December 2009. Helen is 30 years old and has a Bachelor of Business. She is currently em

Explain the term- authorised and paid-up share capital, Explain the term- A...

Explain the term- Authorised and Paid-up Share Capital Number of shares of stock provided for in Articles of Association of a company is the authorized share capital. This figu

Stripped mortgage-backed securities , These securities aid in unpacki...

These securities aid in unpacking the cash flows from a pass-through. The most uncomplicated stripped mortgage-backed securities are the PO-IO-security. Unlike a

Explain and compare the costs of hedging, Explain and compare the costs of ...

Explain and compare the costs of hedging via the forward contract and the options contract. Answer: There is no up-front cost of hedging through forward contracts. Though, in t

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