Valuation Of Preference Shares
Preference Shares are issued by corporations or companies with the primary aim of generating
funds. A preference share usually carries a fixed stated rate of dividend. The dividend is
payable only upon availability of profits. In case of cumulative preference shares, arrears
of dividends can be accumulated and in the year of profits common stock holders can be paid
dividend only upon settlement of all the arrears of cumulative preference dividends.
Preference share holders have preference right over payment of dividend and settlement of
principal amount upon liquidation, over common share holders. A preference share can be
irredeemable or redeemable. Redeemable preference shares have a fixed maturity date and
irredeemable preference shares have perpetual life with only dividend payments periodically
upon profit availability. Preference shares can also be cumulative and non-cumulative.
Valuation of Preference Shares
Basically, the value of a redeemable preference share is the present value of all the future expected
dividend payments and the maturity value, discounted at the required return on preference shares.
Redeemable Preference share value
Redeemable Preference share value
Where:
Dividend 1 to n = Dividends in periods 1 to n.
The value of an irredeemable preference share can be expressed as follows:
Example:
Let us assume the face value of the preference share is $500 and the stated dividend rate is 12%.
The shares are redeemable after 5 years period. Calculate the value of preference shares if the
required rate of return is 13%.
Annual dividend = $500 x 12% = $60
Redeemable Preference share value =
Solving for the above equation, we get the value of the preference shares as $482 (rounded).
Annual dividend = $500 x 12% = $60
Redeemable Preference share value =
Solving for the above equation, we get the value of the preference shares as $482 (rounded).
Online Live Tutor Valuation of Preference Shares:
We have the best tutors in Finance in the industry. Our tutors can break down a complex
Valuation of Preference Shares problem into its sub parts and explain to you in detail
how each step is performed. This approach of breaking down a problem has been appreciated
by majority of our students for learning Valuation of Preference Shares concepts. You will
get one-to-one personalized attention through our online tutoring which will make learning
fun and easy. Our tutors are highly qualified and hold advanced degrees. Please do send us
a request for Valuation of Preference Shares tutoring and experience the quality yourself.
Online Valuation of Preference Shares Help:
If you are stuck with a Valuation of Preference Shares Homework problem and need help,
we have excellent tutors who can provide you with Homework Help. Our tutors who provide
Valuation of Preference Shares help are highly qualified. Our tutors have many years of
industry experience and have had years of experience providing Valuation of Preference
Shares Homework Help. Please do send us the Valuation of Preference Shares problems on
which you need Help and we will forward then to our tutors for review.
Other Topics under Valuation of Bonds and Shares
