Management and Organizational Studies 2310A/B Chapter Notes - Chapter 8: Double Taxation, Dividend Tax, Proxy Fight

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Stacey Hann

Document Summary

Common stock valuation: another major source of financing for firms is issuing common and preferred stock. It is difficult to value a share of common stock for three reasons: Common stock cash flows: the present value of a series of cash flows is simply the amount needed today in order to exactly duplicate the future cash flows at a given discount rate. Zero growth: a share of common stock in a company with a constant dividend, similar to preferred stock, thus is constant through time, since the dividend is always the same, stock can be viewed as ordinary perpetuity. Constant growth: dividends for a company always grows at a steady rate, since dividend grows at a steady rate, stock can be viewed as a growing perpetuity. If the growth rate were greater than the discount rate, the dividend growth model does not work.