A firm has $1 million market value and it sells preference shares for $100 per share. If the annual dividend on the preference share is $7 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. Here, it is $7 / $95 = 0.0737 or 7.37%.

A Firm Has $1 Million Market Value and It Sells