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The Formula to Calculate the Average Issue Price Per Share of Preferred Stock

Original post by Edriaan Koening of Demand Media

A company could issue two different types of stocks: common stocks and preferred stocks. Preferred stocks cost more than common stocks, but they have some benefits for the investor. If the company liquidates its assets, preferred stockholders get paid first. Preferred stockholders may also get a certain amount of minimum dividends. The average issue price per share of preferred stock helps calculate the value of preferred stock at issue.

Stock Issuance

When a company issues its preferred stocks, it usually determines a price at which investors can buy them. This price is known as the par value of the stock. However, investors sometimes pay a price higher than the set par value to get these stocks, especially if the company is doing well and the stocks are popular in the market. This price is known as the additional paid-in capital. Because the price investors pay at purchase could vary, it sometimes becomes necessary to determine the average issue price per share of preferred stock.

Price

To calculate the average issue price per share of preferred stock, you need to know the par value and the additional paid in capital of the stock. The par value is usually expressed as price per share of the stock. For example, the company may state that the par value of the preferred stock is $50 per share. The additional paid in capital, on the other hand, is the total amount excess of the par value for all the preferred shares issued. For example, the additional paid in capital may be $100,000.

Number of Stocks

For the calculation, you also need to know the number of preferred shares issued. The company may authorize the issuance of a number of stocks, but release them in several phases. Unless the company has already released all the stocks for which it has authorized issuance, you need to focus on the number of shares already issued. For example, the company may authorize the issuance of 100,000 shares, but only release 10,000 shares at a time. At the time of calculation, the company may have already issued 50,000 shares.

Calculation

This formula calculates the average issue price per share of preferred stock: [(number of shares issued X par value) + paid in capital] / number of shares issued. For example, assume the company has issued 50,000 shares at par value of $50 and receive paid in capital of $100,000. To fine the average issue price per share of preferred stock, perform this calculation: [(50,000 X $50) + $100,000] / 50,000 = $52.

                   

References

About the Author

Edriaan Koening started professionally writing in 2005 while studying toward her Bachelor of Arts in media and communications at the University of Melbourne. She has since written for several magazines and websites. Koening also holds a Master of Commerce in funds management and accounting from the University of New South Wales.

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