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Unformatted text preview: ducted from firm’s income for tax purposes
Cumulative Dividend How to value preferred stock?
How to value preferred stock? Present value of anticipated/expected cash flows when discounted at the required rate of return by the preferred stockholders
What cash flows are anticipated by preferred stockholders? Dollar amount of dividend every year for an infinite time period Value of Preferred Stock = PV of anticipated dividend discounted at the required rate of return
Examples Common Stocks
Common Stocks Common Stock Common stockholders are the true owners of the company
Entitled to dividend if and when declared by the board of directors
Entitled to vote at the annual general meetings of the firm
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