Preferred stock valuation, Auditing

Assignment Help:

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).


Related Discussions:- Preferred stock valuation

Discontinued operations - audit of accounting estimates, Discontinued Opera...

Discontinued Operations - Audit of Accounting Estimates A discontinued operation is a component of an entity that either has been disposed of or is held for sale. So it might

Pension funds - specialized audit situation, Pension Funds - Specialized Au...

Pension Funds - Specialized Audit Situation Pension funds are set up through companies or another organization: (a)  To retired employees to administer the pension payable

Responsibilities of the auditor, Responsibilities of the Auditor The Au...

Responsibilities of the Auditor The Auditor has no duty for the prevention and recognition of fraud and error though the annual audit might act as a restraint. As explained

Completeness of liabilities, Completeness of Liabilities In distortion...

Completeness of Liabilities In distortion, the directors tend to involve non-existent assets or keep out liabilities. Hence whereas along with assets we are especially concern

Examination of Deeds, Examination of Deeds Make Sure that the mortg...

Examination of Deeds Make Sure that the mortgage is in the name shown in the advance records; That there is a document of title to the property within mortgage and that

Basic elements of a management representation letter, Basic Elements of a M...

Basic Elements of a Management Representation Letter Whenever requesting a management representation letter, such the auditor would request which it be addressed to the audi

Goodwill and business combinations - intangible assets, Goodwill and Busine...

Goodwill and Business Combinations - Intangible Assets Goodwill is the one of most strange of all assets since it cannot be differentiate from the business.  It cannot be sold

Long-term liabilities, Long-Term Liabilities Long-term liabilities are...

Long-Term Liabilities Long-term liabilities are generally evidenced through an agreement called a debenture. For this purpose, long-term loans are often called debentures. The

Summary of ias 2, Summary of IAS 2 Inventories are measured at the low...

Summary of IAS 2 Inventories are measured at the lower of cost and net realizable value. Entire realizable price is the calculated selling price in the regular course of busin

Non-adjusting events - audit process, Non-Adjusting Events - Audit Process ...

Non-Adjusting Events - Audit Process Non-adjusting events are those that are indicative of conditions such arose than the balance sheet date as a decline in the market price o

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd