The cost of equity: Wally's War Duds has a preference share issue outstanding with a current price of $26.57. The company is expected to pay a dividend of $1.86 per share a year from today. What is the company's cost of preference shares?
A) 6.50%
B) 7.00%
C) 7.50%
D) 8.00%

Question

Quizplus · Accepted Answer

The cost of preference shares is the dividend yield, which is calculated by dividing the annual dividend by the market price of the preference share: $1.86/$26.57 = 7.00%. Therefore, the answer is B.

The Cost of Equity: Wally's War Duds Has a Preference