--%>
Assignment Help - homework help

Effect of illegal obligations on cost of equity

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 contain a contractual claim on dividends the funds supplied by stockholders definitely contain a cost.  Equity investors are paid last and therefore they are taking the greatest risk among all of the suppliers of capital.  If the company does not get a higher rate of return onto equity funds to compensate for the higher risk taken through equity investors, the price of the stock will fall and thus the value of the firm. 

   Related Questions in Managerial Accounting

  • Q : VAT entry How to make a VAT entry in

    How to make a VAT entry in books including set off?

  • Q : Explain Cost or Benefit Analysis Cost

    Cost or Benefit Analysis: The Cost-benefit analysis (abbreviated as CBA) is an analytical device for assessing and pros and cons of moving forward with the business proposal. It is a process by which business decis

    		•
  • Q : Define Actual Cost Actual Cost : It is

    Actual Cost: It is the amount (sum) determined on the basis of cost acquired involving standard cost appropriately adjusted for the applicable variance.

    		•
  • Q : Define Full Cost Full Cost : The sum of

    Full Cost: The sum of all costs needed by a cost object comprising the costs of activities executed by other entities in spite of of funding sources.

    		•
  • Q : Define Investor Relations Investor

    Investor Relations: A department, exist in most medium to big public companies, which gives investors with a precise account of the company's affairs. This aids investors to make informed sell or buy decisions. Inv

    		•
  • Q : Break even analysis based homework I

    I need homework help in accounting, 10 questions there about break even analysis. let us know if you can so it

    		•
  • Q : Define Opportunity Cost Opportunity

    Opportunity Cost: The value of the substitutes foregone by approving a particular strategy or utilizing resources in a particular manner. Al so termed as Alternative Cost or Economic Cost.

    		•
  • Q : Accounting Information Systems &

    You must prove your calculations The following information pertains to Blue Company revenue cycle and was reported at December 31, 2011. Year 2011, additional information is as follows: 1.       100 units that was purchased fo

    		•
  • Q : Define partnership A partnership is

    A partnership is stated as ‘the relationship which subsists among persons carrying on business in common with a view togain or profit’

    		•
  • Q : Define Partnership deed Partnership

    Partnership deed: Partnership deed is a written agreement including the terms and conditions agreed by all the Partners.

    		•