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Will the cost of equity be zero

Will the cost of equity be zero if dividends paid to common stockholders will not be legal obligations of a corporation?

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Even though common stockholders don’t have a contractual claim on dividends but the funds supplied by stockholders definitely have a cost. Equity investors are mostly paid last and thus they are under the greatest risk among all the capital suppliers. If a company is not earning a higher return rate on equity funds to pay off for the higher risk taken by equity investors, price of the stock is going to fall and consequently the value of the firm.

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