Final answer:
Dividends per share for noncumulative preferred stock and cumulative preferred stock vary due to the right of cumulative stockholders to accumulate unpaid dividends, affecting how investors value these stocks for future dividends and capital gains.
Step-by-step explanation:
The differences between dividends per share of common stock for noncumulative preferred stock and cumulative preferred stock are rooted in the respective dividend rights attached to each type of stock. Noncumulative preferred stock does not have the right to accumulate unpaid dividends; if the company does not declare a dividend, the opportunity is lost for that period. Conversely, cumulative preferred stock gives the shareholder the right to accumulate unpaid dividends, meaning if a dividend is not paid in one or more periods, it will be owed to them in the future before common shareholders can receive any dividends.
When it comes to applying discounting to the present value of these dividends, investors must consider future potential benefits, including both capital gains from the sale of the stock and dividends that might be paid over time. The dividend component of the expected return can vary significantly between the two types of preferred stock due to the differences in dividend rights.