Flashcards in chapter 7: equity valuation part 2 formulas for preferred shares Deck (9)

Loading flashcards...

1

## determine the required return on equity for preferred shares

###
K= RF + risk premium

K = require return on equity

RF = risk free rate of return (real rate + expected inflation)

- like a perpetual annuity

2

## Estimate the value of the preferred share

###
Pps = Dp / Kp

Pps = PV or market price (selling price)

Dp = dividend amount

(face value x stated dividend rate)

Kp = required rate of return or discount rate

3

## Determine the required rate of return on preferred shares

###
Kp = Dp / Pps

Kp = required rate of return

Dp = dividend amount

Pps = PV or market price (selling price)

4

## determine the preferred share price

### dividends paid per share / required return

5

## determine dividends paid paid per share

### price x required rate of return

6

## determine dividend rate

### dividend paid per share / par value

7

## determine required return

### dividend paid per share / price

8

## determine par value

### dividend paid per share / dividend rate

9