A firm has $3 million market value and it sells preference shares at $100 per share. If the annualdividend on the preference share is $9 and it trades at $95, what is the cost of preference share capital?

Question

Quizplus · Accepted Answer

The cost of preference share capital is calculated as the annual dividend divided by the market price of the preference share. In this case, the annual dividend is $9 and the market price of the preference share is $95. Therefore, the cost of preference share capital is $9/$95 = 9.47%.

A Firm Has $3 Million Market Value and It Sells