Valuation and Characteristics of Common Stocks


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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 The...
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