1. According to the general dividend valuation model, a firm that reinvests all its earnings and pays no cash dividends can still have a common stock value greater than zero. How is this possible?
2. Explain the relationship between financial decisions and shareholders' wealth.
3. Explain how each of the following factors would affect the valuation of a firm's common stock, assuming that all other factors remain constant:
a. The general level of interest rates shifts upward, causing investors to require a higher rate of return on securities in general.
b. Increased foreign competition reduces the future growth potential of the firm's earnings and dividends.
c. Investors reevaluate upward their assessment of the risk of the firm's common stock as the result of increased South American investments by the firm.
4. In the context of the constant growth dividend valuation model, explain what is meant by a. Dividend yield