medium · Investment Banking
A company has $100 million of Preferred Stock with a 6% dividend.
When calculating Enterprise Value, why is this $100 million added to Equity Value?
- To match the EBITDA denominator, since it also includes preferred dividends in its calculation.
- Because it is technically treated as a form of long-term debt on the balance sheet.
- Because preferred dividends, like interest expense, are generally tax-deductible payments.
- Because it represents a claim on the company that sits senior to common equity holders.
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