Preferred stock valuation, Auditing

Preferred stock valuation

1. Features of preferred stock (You may review what you've learned about preferred stock from TCA 221):

a. Multiple classes in terms of convertibility (into common stock) and protective provisions (in the event of bankruptcy).

b. Claim on assets and income before common stocks but after debts.

c. Stable dividends over time (like perpetuity).

d. Cumulative dividends - all past unpaid preferred dividends must be paid before any common stock dividends are declared.

e. Protective provisions - shareholder has voting rights in the event of nonpayment of dividends.

f. May have a retirement time frame - similar to maturity of the debt - hybrid security.

2. Valuation - similar to perpetuity (due to equal dividends over time)

Value of preferred stock (Vps):

Vps = annual dividend / RRR = D / Rps

Rps = RRR for the investor (discount rate for this preferred stock)

For example, a preferred stock pays $2 dividend annually and the investor's RRR is 10%. For the investor, the stock's value is $20 (2/0.1=20).

Posted Date: 2/18/2013 6:40:32 AM | Location : United States







Related Discussions:- Preferred stock valuation, Assignment Help, Ask Question on Preferred stock valuation, Get Answer, Expert's Help, Preferred stock valuation Discussions

Write discussion on Preferred stock valuation
Your posts are moderated
Related Questions
Discovery of unlawful acts When an auditor discovers unlawful acts, usually he is not expected to disclose to the police or other authorities unless: The client authorise

Determinants of amount of audit evidence

I need help with my homework for medical billing and coding can you help?

A municipal village or a nonprofit organization solicits bids for the annual audit from local audit firms, and the firm with the lowest bid is selected. Answer the following que

Question : Describe the methodology and process of conducting an audit. Define audit Describe the methodology of conducting an auditĀ  Describe the process of conduc

Question: Part A (i) Describe audit sampling. Why do auditors sample instead of examining every transaction? (ii) List the four factors that enter into the sample size

Advantages and disadvantages

online exam in Auditing class. the exam will be about 2 hr. Thank you

Assertions about account Assertions about account balances at the duration end: a) Existence -assets, equity and liabilities interests exist. b) Obligations and Ri

Recognize the Related Parties The auditor should review information provided through the management and directors recognize the names of all identified related parties and sho