Chapter 12
Valuing Preferred Stock
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter Objectives, 1 of 2
By the end of this chapter, you should be able to:
• LO 12-1 Define the main characteristics of preferred stock.
• LO 12-2 Identify the difference in valuation between perpetual an
finite-lived preferred shares.
• LO 12-3 Differentiate between convertible and callable preferred
shares.
• LO 12-4 Describe and implement the valuation approach used to
floating preferred shares.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter Objectives, 2 of 2
• LO 12-5 Contrast the valuation of cumulative and noncumulative
preferred shares.
• LO 12-6 Explain how participating preferred shares offer investors
additional income potential over otherwise identical nonparticipa
preferred shares.
• LO 12-7 Describe and calculate the differential tax treatment of
preferred share dividends encountered by corporate and individu
investors in preferred stock issues.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Overview of Preferred Stock Features, 1 o
Preferred shares often offered when a company is startin
• Investors get a first claim.
• Many are convertible to common shares after a set date
• Usually have a steady dividend that is not dependent on ear
• Often do not have any voting rights.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Valuing Preferred Stock
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter Objectives, 1 of 2
By the end of this chapter, you should be able to:
• LO 12-1 Define the main characteristics of preferred stock.
• LO 12-2 Identify the difference in valuation between perpetual an
finite-lived preferred shares.
• LO 12-3 Differentiate between convertible and callable preferred
shares.
• LO 12-4 Describe and implement the valuation approach used to
floating preferred shares.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter Objectives, 2 of 2
• LO 12-5 Contrast the valuation of cumulative and noncumulative
preferred shares.
• LO 12-6 Explain how participating preferred shares offer investors
additional income potential over otherwise identical nonparticipa
preferred shares.
• LO 12-7 Describe and calculate the differential tax treatment of
preferred share dividends encountered by corporate and individu
investors in preferred stock issues.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Overview of Preferred Stock Features, 1 o
Preferred shares often offered when a company is startin
• Investors get a first claim.
• Many are convertible to common shares after a set date
• Usually have a steady dividend that is not dependent on ear
• Often do not have any voting rights.
Adair | Nofsinger, Foundations of Investments, 1 st Edition. © 2024 Cengage. All Rights Reserved. May not be scanne
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
