Recognize the key characteristics of preferred stock, and describe how to estimate the value of preferred stock.

1. Define the legal rights of stockholders. 2. Recall the distinction between a stock’s price and its intrinsic value. 3. Identify the two models that can be used to estimate a stock’s intrinsic value: the discounted dividend model and the corporate valuation model. 4. Recognize the key characteristics of preferred stock, and describe how to estimate the value of preferred stock. 5. Select why the weighted average cost of capital (WACC) is used in capital budgeting. 6. Recall the costs of different capital components—debt, preferred stock, retained earnings, and common stock. 7. Recognize the different component costs to determine the firm’s WACC. 8. Recognize capital budgeting. 9. Select and use the major capital budgeting decision criteria, which are NPV, IRR, MIRR, and payback. 10. Recall why NPV is the best criterion and how it overcomes problems inherent in the other methods.