1. The value of any investment relies on the cash flows; i.e., what investors will actually receive. Thecash operation from a re-superstructure of stock space the dividends
A considerable percentage that the companies provided on the NYSE and also the NASDAQdon"t salary dividends, but investors are however willing come buy shares in them. Just how is this possiblegiven your answer come the vault question?
Investors think the company will at some point start paying dividends (or be marketed to an additional company).

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Under what two assumptions can we use the dividend growth modelpresented in the thing to recognize the value of a share of stock?
(i) if dividends space expectedto take place forever; the is, the stock provides dividends in perpetuity, and (ii) if a continuous growth rateof dividends wake up forever
Suppose a firm has a desired stock issue and a commonstock issue. Both have just paid a $2 dividend. Which execute you think will have actually a greater price, a re-superstructure of thepreferred or a share of the common?
The typical stock probably has a greater price since the dividend have the right to grow, whereas the is fixed onthe preferred. However, the preferred is less risky since of the dividend and liquidation preference,so that is feasible the preferred could be precious more, relying on the circumstances.
Based on the dividend growth model, what room the two contents of thetotal return top top a re-superstructure of stock? Which do you think is typically larger?
The two contents are the dividend yield and the resources gains yield. For most companies, the capitalgains productivity is larger. This is straightforward to watch for companies that pay no dividends. For companies that dopay dividends, the dividend returns are rarely over 5 percent and are often much less.
In the paper definition of the dividend growth model, is it true the the development rate in dividendsand the growth rate in the price that the stock room identical?
The dividend expansion model makes the implicit assumption that the share price will thrive at the sameconstant price as the dividend. What this means is the if the cash flows on one investment flourish at aconstant price through time, the worth of that invest grows at the same rate as the cash flows.
Is it possible for a agency to pay dividends when it has actually a negative netincome because that the year? can this occur for longer periods?
The firm might have hopeful operating cash flow with negativeearnings, sell fixed assets, alleviate net working capital, or raise cash from creditors in order to paydividends. While this is possible in the brief term, as a useful matter end the much longer term, thecompany would more than likely need to have actually a optimistic net earnings (at the very least on average) in order come maintaina dividend.
It wouldn"t seem come be. Investors that don"t like the voting functions of a specific class of share areunder no responsibility to buy it.
Some companies, such as Google, have created classes of share with tiny or novoting civil liberties at all. Why would certainly investors buy together stock?
Investors buy together stock due to the fact that they want it, recognizing that the shares have no poll power.Presumably, investor pay less for such shares 보다 they would otherwise.
Evaluate the adhering to statement: managers should not emphasis on the current stockvalue due to the fact that doing so will bring about an overemphasis top top short-term revenues at the cost of long-termprofits
Presumably, the present stock value mirrors the risk, timing, and also magnitude of all future cash flows,both short-term and also long-term. If this is correct, climate the declare is false.
In the constant dividend development model, what is the highestreasonable expansion rate because that a stock"s dividend?
A reasonable border for the growth rate is the growth rate of the economy, i m sorry in the U.S. Hashistorically been around 3 to 3.5 percent (after accounting for inflation). Together we will check out in a later chapter,inflation has historically averaged about 3 percent, so 6 come 6.5 percent (before audit for inflation)would it is in a reasonable limit.
In the chapter, we discussed that plenty of companies have been under press todeclassify your boards the directors. Why would certainly investors want a board to be declassified? What space theadvantages of a divide board?
In a declassified board, every plank seat is increase for election every year. This structure enables investorsto vote the end a manager (and even the whole board) much more quickly if investors space dissatisfied. However, this structure likewise makes the more complicated to fight off a hostile takeover bid. In contrast, a classified plank can an ext effectively negotiate on behalf of stockholders, maybe securing better terms in a deal. Classified board are also important for institutional memory. If whole board were voted out in a single year, there would certainly be no board members obtainable to evaluate the company"s directionwith regards come previous decisions.

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The major difficulty in using price ratio analysis is determining the correct benchmark PE ratio. In aprevious chapter, us showed just how the sustainable expansion rate is determined, and in a future chapterwe will discuss the compelled return. Return not precise measures, the development rate and required returnhave a solid economic basis. Through the PE ratio, like any kind of other ratio, that is an overwhelming to recognize whatthe ratio need to be. Due to the fact that a tiny difference in the PE ratio can have a far-ranging effect ~ above thecalculated stock price, it is easy to come at an untrue valuation.