7.4 Decision Making and Common Stock Value

  1. LG6

Valuation equations measure the stock value at a point in time based on expected return and risk. Any decisions of the financial manager that affect these variables can cause change in the value of the firm. Figure 7.2 depicts the relationship among financial decisions, return, risk, and stock value.

Figure 7.2

Decision Making and Stock Value

A flow diagram depicts the relationship among financial decisions, return, risk, and stock value.

Financial decisions, return, risk, and stock value

Changes in Expected Dividends

Any management action that would cause stockholders to raise their dividend expectations should increase the firm’s value (as long as stockholders ...

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