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Up0
Preferred stock of 6$ dividend
sustainable growth rate of company is 5%
yield on comparable stocks is 11.5%
marginal tax rate is 30%value the stock of the company
the answer is 6/0.115 = 52$why did we not use the growth rate in the denominator? I would have gotten ninety something dollars if : 6/ (0.115-0.05)
is it a rule for preferred stocks to not use growth rate?? -
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Up1
Yes….. They are treated like a perpetuity since they have no maturity… Also, unlike common shareholders, preferred shareholders receive fixed payments that do not generally grow.
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