--%>
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 : Fundamentals of Accounting Assignment

    Assignment 1: A adjusted Trial balance table given below: Southwest Business School

    Q : Cash coverage of growth A financial

    A financial analysis tools that measures the need for financing. The formula is the cash-flow from operating activities divided by the cash paid for long-term asset. Cash paid for long-term assets can be found on the statement of cash-flow, in the investing-activities

    		•
  • Q : Effect of illegal obligations on cost

    Normal 0 false false

  • Q : Calls in Arrears What are the various

    What are the various Calls in Arrears? Describe it.

    		•
  • Q : Main working areas of the Routing and

    Write a short note on the main working areas of the Routing and personnel department?

    		•
  • Q : Define Differential Cost Differential

    Differential Cost: The cost difference predicted when one course of action is adopted rather than others.

    		•
  • Q : Market Analysis and Logic 1.

      1. Contribution After Marketing Assume that the sales forecast for brand TOJO is 160,000 units, and that you expect to sell 50% of these units through mass merchandisers,

    		•
  • Q : Contents of a partnership deed State

    State some contents of a partnership deed. Answer: A) Name of the firm.B) Name and complete address of the Partners.C) The date of formation and period of Partnership.D) Ratio in which gain or loss

    		•
  • Q : Blackout period A defined time period

    A defined time period in accounting for stock options. In the mean while the blackout period person granted the option is not allowed to exercise it. This usually occurs after the granting of the stock options and allows the price of the stock to increase above the exercise price.  <

    		•
  • Q : Calculate From the books of Aggarwal

    From the books of Aggarwal Bors, the following information have been extracted: Rs. Sales 2,40,000 Variable costs 1,44,000 Fixed costs 26,000 Profit before tax 70,000 Rate of tax 40% The firm is proposing to buy a new plant which can generate additional annual profit of Rs. 10,000. The fixed

    		•