12. Valuing preferred stock Companies that have preferred stock outstanding promise to pay a stated dividend for an infinite period. Preferred stock is treated like a perpetuity if the payments last forever. Preferred stocks are considered to be a hybrid of a common stock and a bond. For example, one of the major differences between preferred shares and bonds is that the issuing companies can suspend the payment of their preferred dividends without throwing the company into bankruptcy. However, similar to bonds, preferred stockholders receive a fixed payment-their dividend-before the company's residual earnings are paid out to its common stockholders and, as with common stock, preferred stockholders can benefit from an appreciation in the value of the firm's stock securities. Consider the following case of Edinburgh Exports: Edinburgh Exports pays an annual dividend rate of 8.00 % on its preferred stock that currently returns 10.72% and has a par value of $100.00 per share. What is the value of Edinburgh's preferred stock? $100.00 per share $89.56 per share $111.94 per share $74.63 per share Suppose that there is high unemployment, which causes interest rates to fall, which in turn pulls the preferred stock's yield to 6.43 %. The value of the preferred stock will 11. More on the corporate valuation model Galaxy Corp. is expected to generate a free cash flow (FCF) of $9,220.00 million this year (FCF- $9,220.00 million), and the FCF is expected to grow at a rate of 26.20 % over the following two years (FCFa and FCFa). After the third year, however, the FCF is expected to grow at a constant rate of 4.26% per year, which will last forever (FCF.). Assume the firm has no nonoperating assets. If Galaxy Corp.'s weighted average cost of capital (WACC) is 12.78%, what is the current total firm value of Galaxy Corp.? (Note: Round all intermediate calculations to two decimal places.) $152,825.32 million $183,390.38 million $207,251.43 million $27,559.76 million Galaxy Corp.'s debt has a market value of $114,619 million, and Galaxy Corp. has no preferred stock. If Galaxy Corp. has 675 million shares of common stock outstanding, what is Galaxy Corp.'s estimated intrinsic value per share of common stock? (Note: Round all intermediate calculations to two decimal places.) $62.26 $169.81 $55.60 $56.60