Chapter 6 Homework.docx

Chapter 6 Homework.docx - Chapter 6 Business Analysis 1 A...

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Chapter 6 Business Analysis 1. A privately or closely held company is valued by capitalizing a stream of earnings, net income, because all of a firm’s earnings are available to its owners. The analogous figure for the stocks of publicly held companies is dividends, because they represent cash received by stockholders. Although all earnings technically belong to owners, the stockholders of larger companies generally can’t influence how much of those earnings they receive. Therefore, dividends, which stockholders receive, are the best measure for mathematically calculating value. However, practitioners do use EPS regularly for less precise estimates. The starting point should be the capitalized value of the current dividend, essentially assuming it
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