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
Historic Costs Methods - Long Term Contracts You will notice such this exercise is completely dependent on the company estimating its further costs.  This is wherever the audi

Question 1: "While their roles sometimes overlap, financial statement auditors and forensic accounting investigators tackle financial fraud issues from different perspectives,

Statistical sampling - Advantages A. It is defensible and scientific; B. It gives a precise mathematical statement for probabilities of to be correct; C.  It is efficien

Provide the data regarding all about auditing of Newspaper agencies

strongest mediul of communication

Q. What is ordinarily the first step in the formation of a corporation? a. Development of by-laws for the corporation b. Issuance of the corporate charter c. Application for incorp

Attempts at definition of the 'true and fair' view There following quotations represent authoritative views on the meaning of true and fair view. A true and fair view impli

? Decide what areas of the company will be audited and the frequency of the audits. Prepare a yearly audit schedule and distribute. ? Make an audit plan. Decide what other audit r


Action if Management Refuses to provide Representations Whether management rejects to provide a representation which the auditor considers compulsory, this constitutes a scope