If the preference shares are redeemable on a predetermined date,the calculation of the cost of preference shares is the same as the calculation of the:
A)effective interest rate on debt.
B)marginal interest rate on debt.
C)average interest rate on debt.
D)cost of short-term debt.

Question

Quizplus · Accepted Answer

The calculation of the cost of preference shares is the same as the calculation of the effective interest rate on debt because in both cases, the future cash flows are known and discounted back to the present using the market interest rate. The marginal interest rate on debt, average interest rate on debt, and cost of short-term debt are not relevant to the calculation of the cost of preference shares.

If the Preference Shares Are Redeemable on a Predetermined Date,the