08 THE STOCK MARKET

08 THE STOCK MARKET - SECTION 8: THE STOCK MARKET THREE...

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SECTION 8: THE STOCK MARKET
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THREE WAYS TO GET MONEY FOR BUSINESS EXPANSION: Use your own income Borrow Sell part of the company to others by issuing stock
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Each share of stock represents partial ownership of a corporation. Suppose you own 100% of the shares of stock. Thus, you own the whole corporation. Suppose you need money to finance an expansion. If you sell 20% of the shares of stock to me, now you own 80% of the corporation and I own 20%. You gave up ownership of part of the company in return for $$
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WHY OWN SHARES OF STOCK? DIVIDENDS CAPITAL GAINS
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DIVIDENDS When a corporation earns a profit, it pays corporate income taxes. The corporation can keep the after tax profits as RETAINED EARNINGS to finance future projects OR the corporation can distribute the after tax profits to the stockholders as DIVIDENDS
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TAX RATE ON DIVIDENDS MAXIMUM RATE = 15%
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CAPITAL GAIN: Increase in the price of an asset CAPITAL LOSS: decrease in the price of an asset Individual income taxes are paid on capital gains when the asset is sold
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This note was uploaded on 04/07/2008 for the course ECON 0110 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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08 THE STOCK MARKET - SECTION 8: THE STOCK MARKET THREE...

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