Management and Organizational Studies 2310A/B Chapter Notes - Chapter 8: Stock Valuation, Preferred Stock, Steady-State Economy

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

Document Summary

Cash flows for shareholders: more difficult to value a share of common stock. Po = d0(1 + g) / r - g. Stock price sensitivity to dividend growth, g: when the growth rate is higher (increasing), the price is bigger (denominator gets smaller, the higher the g, the higher the stock price. A stock"s cash dividend divided by its current price: total return growth rate (g) capital gains yield. The dividend growth rate or the rate at which the value of an investment grows. Common stock features: common stock- equity without priority for dividends or in bankruptcy. Consequently, a firm can"t go bankrupt for not declaring dividends: dividend payments are not considered a business expense and are not tax deductible, dividends received by individual shareholders are partially sheltered by the dividend tax credit. Dividends received by corporate shareholders are not taxed.