Explore BrainMass

Analytical Drafts and Dividends

This content was STOLEN from BrainMass.com - View the original, and get the solution, here!

How does one do stock prices and dividends that reflect the value of the firm?

© BrainMass Inc. brainmass.com September 21, 2018, 11:41 am ad1c9bdddf - https://brainmass.com/business/dividends-stock-repurchase-and-policy/analytical-drafts-dividends-482778

Solution Preview


Commonly, the goal of companies are said to be to maximize profit. This could be attained through obtaining the highest revenue possible while incurring the least expenditures possible. With this goal of the firm, what is manifested is that maximization of profit is dependent on the capability of the company to generate sales in the most effective and efficient (least cost) manner.
However, according to Keown et al. (2002), the goal of the firm must be maximization of shareholder wealth which is equivalent to maximization of the price of the existing common stock. Anchored on these views, a thesis statement is formulated: That Prices of common stock and the dividends distributed to investors are true indicators of the value of the firm.

To finance the company's operations and various plans for expansions and growth, one of the options is issuance of stocks. As noted by Mishkin (2007), common stock is the principal way that corporations raise equity capital. However, this can only be made possible if there are investors who are willing to invest their money to the company.

Investment decisions of potential investors are based on several factors: the company's products and services, management competencies and reputation, market and profitability potentials, image in the community, stability, and several other factors. The aggregate of all of these factors would comprise the value of the firm. This value of the firm will highly determine how much price the investors will be willing to purchase its stocks. The higher the value of the firm as seen by the potential investors ...

Solution Summary

The expert examines analytical drafts and dividends that reflect a value of a firm.