Shareholder Control – 3 Questions

| March 29, 2017

Question
Shareholder Control – 3 Questions

1-Shareholder Control

It is frequently stated that the one purpose of the preemptive right is to allow individuals to maintain their proportionate share of the ownership and control of a corporation.

How important do you suppose control is for the average stockholder of a firm whose shares are traded on the New York Stock Exchange?
Is the control issue likely to be of more importance to stockholders of publicly owned or closely held (private) firms? Explain.
2-Stock Pricing

Two investors are evaluating GE’s stock for possible purchase. They agree on the expected value of D1 and also on the expected future dividend growth rate. Further, they agree on the riskiness of the stock. However, one investor normally holds stocks for 2 years, while the other holds stocks for 10 years. On the basis of the type of analysis addressed to date, should they both be willing to pay the same price for GE’s stock?

3-Preferred Stock

A bond that pays interest forever and has no maturity is a perpetual bond. In what respect is a perpetual bond similar to a no-growth common stock? Are there preferred stocks that are evaluated similarly to perpetual bonds and other preferred stocks that are more like bonds with finite lives? Explain.

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