--%>
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 : Techniques to liberate the function of

    Write down the different techniques employed to liberate the function of management accounting?

    		•
  • Q : Aging of Accounts What are Aging of

    What are Aging of Accounts? Briefly illustrate it.

    		•
  • 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 : Significance of partnership deed Why is

    Why is it significant to encompass a partnership deed in writing? Answer: Partnership deed is significant as it is a document stating relationship of each and every

    		•
  • Q : Define Estimated Cost Estimated Cost :

    Estimated Cost: The procedure of projecting a future outcome in terms of cost, based on information accessible at the time. The estimated costs, instead of actual costs, are at times the basis for credits to work-in-process accounts a

    		•
  • Q : Provisional Entries Describe

    Describe Provisional Entries?

    		•
  • Q : What is Direct Cost Direct Cost : The

    Direct Cost: The cost of resources directly used by an activity. The direct costs are assigned to actions by direct drawing of units of resources used by individual actions. A cost which is particularly recognized with a single cost o

    		•
  • Q : Define Cost Accounting Practice Cost

    Cost Accounting Practice: Any disclosed or recognized accounting process or technique that is used for the measurement of cost, assignment of cost to cost objects and assignment of cost to accounting periods.

    		•
  • Q : Reaping the benefits of IT What do you

    What do you mean by the term reaping the benefits of IT? Explain n brief?

    		•
  • Q : What is Job Order Costing Job Order

    Job Order Costing: A technique of cost accounting which accrued costs for individual jobs or lots. A job might be a service or manufactured item, like the repair of tools or the treatment of a patient in the hospital.

    		•