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A Firm Has Two Classes of Common Stock Outstanding

question 33

Essay

A firm has two classes of common stock outstanding:
Class A,which carries voting rights of 10 votes per share but receives no dividends (ever),and Class B,which carries voting rights of 1 vote per share and pays dividends whenever they are declared by the board.Which would you be willing to pay more for and why?


Definitions:

Profit Margin

Profit margin is a financial ratio that measures the percentage of revenue remaining after all expenses have been deducted, indicating the efficiency of a company in generating profit.

Dividend Yield

A financial ratio that indicates how much a company pays out in dividends each year relative to its share price.

Return on Assets

A financial ratio that measures the efficiency of a company in generating profit from its assets.

Basic Earnings Per Share

A financial metric that calculates the amount of net income earned per share of stock outstanding.

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