XYZ Corporation is trying to determine the appropriate cost of preference shares to use in determining the firm's cost of capital.This firm's preference shares are currently selling for $29.89 per shares and pay a perpetual annual dividend of $2.60 per share.Compute the cost of preference shares for XYZ.

Question

Quizplus · Accepted Answer

The cost of preference shares can be calculated using the formula: Cost of preference shares = Annual dividend payment / Market price per share.

Cost of preference shares = $2.60/$29.89 = 0.087 or 8.7%

Therefore, the answer is C) 8.7%.

XYZ Corporation Is Trying to Determine the Appropriate Cost of Preference