Why does the value of a share of stock depend on dividends?A substantial percentage of the companies listed on the NYSE and the Nasdaq don’t pay dividends, but investors are nonetheless will-ing to buy shares in them. How is this possible given your answer to the previ-ous question?Referring to the previous questions, under what circum-stances might a company choose not to pay dividends?Under what two assumptions can we use the divi-dend 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 true that the growth rate in dividends and the growth rate in the price of the stock are identical?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 Reader’s Digest, 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.
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