Chapter Questions
Why does the value of a share of stock depend on dividends?
A substantial percentage of the companies listed on the NYSE and NASDAQ don't pay dividends, but investors are nonetheless willing to buy shares in them. How is this possible given your answer to the previous question?
Referring to the previous questions, under what circumstances might company choose not to pay dividends?
Under what two assumptions can we use the dividend growth model presented in the chapter to determine the value of a share of stock? Comment on the reasonableness of these assumptions.
Suppose a company has a preferred stock issue and a common stock issue. Both have just paid a $$\$2$$ dividend. Which do you think will have a higher price, a share of the preferred or a share of the common?
Based on the dividend growth model, what are the two components of the total return on a share of stock? Which do you think is typically larger?
In the context of the dividend growth model, is it Page 265 true that the growth rate in dividends
When it comes to voting in elections, what are the differences between U.S. political democracy and U.S. corporate democracy?
Is it unfair or unethical for corporations to create classes of stock with unequal voting rights?
Some companies, such as Google, have created classes of stock with no voting rights at all. Why would investors buy such stock?
Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.
One of the assumptions of the two-stage growth model is that the dividends drop immediately from the high growth rate to the perpetual growth rate. What do you think about this assumption? What happens if this assumption is violated?
In the chapter, we mentioned that many companies have been under pressure to declassify their boards of directors. Why would investors want a board to be declassified? What are the advantages of a classified board?
What are the difficulties in using the PE ratio to value stock?