Because common stock represents a residual interest in the corporation,the value of common stock is equal to the total firm value less the firm's outstanding debt.

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Common stockholders have the lowest priority in receiving payment in case of liquidation or bankruptcy, and hence they are considered residual owners. The value of common stock, therefore, represents the amount left for shareholders after paying the firm's outstanding debts and obligations.

Because Common Stock Represents a Residual Interest in the Corporation,the