Foundations of Finance and Financial Management Assignment

Foundations of Finance and Financial Management - Assignment Example 4) There could be multiple reasons why this "free rating" would have angered the issuer of bonds. It could be because that the rating company is not familiar with the firm policies and has not taken into account some of the necessary information that would have given a completely different angle or picture to the bond rating. Similarly, the rating published by this company could have "put-off" some of the potential investors from investing into these bonds and hence the issuer of the bonds would have lose some of the potential money that they could have borrowed by issuing bonds. 2) The logic behind this model is that dividend grows at a constant rate in perpetuity. By perpetuity we mean that the dividend payments will continue forever and hence the value of stock will be equal to next year's dividend divided by required rate of return minus assumed dividend growth. 3) There are multiple reasons for that. The first reason is those preferred stockholders have a immediate claim on company's profit which is before the real owners of the company- ordinary stockholder. Similarly, the dividend percentage is fixed and if the company cannot pay it in the current year, it will have to pay it in the future.