A firm has $2 million market value and it sells preference shares for $100 per share. If the annual dividend on the preference share is $8 and it trades at $90, what is the cost of preference share capital?

Question

Quizplus · Accepted Answer

The cost of preference share capital is calculated as the annual dividend per share divided by the market price per share. Here, it is $8 / $90 = 0.0889 or 8.89%.

A Firm Has $2 Million Market Value and It Sells