The cost of equity: Melba's Toast has a preference share issue outstanding with a current price of $19.50. The company is expected to pay a dividend of $2.34 per share a year from today. What is the company's cost of preference shares?
A) 11.50%
B) 11.75%
C) 12.00%
D) 12.25%

Question

Quizplus · Accepted Answer

The cost of preference shares is calculated as the dividend divided by the current price: $2.34 / $19.50 = 0.12 or 12.00%.

The Cost of Equity: Melba's Toast Has a Preference Share