Cost of Preference Share Capital:
Cost of preference share capital is the annual preference share dividend by the net proceeds from the sale of preference share.
There are two types of preference shares - irredeemable and redeemable. Cost of redeemable preference share capital is calculated with the help of the following formula:
Kp = Dp / Np
Where,
Kp = Cost of preference share
Dp = Fixed preference dividend
Np = Net proceeds of an equity share
Cost of irredeemable preference share is calculated with the help of the following formula:
Kp = [Dp + (P-Np) / n] / [(P+Np) / 2]
Where,
Kp = Cost of preference share
Dp = Fixed preference share
P = Par value of debt
Np = Net proceeds of the preference share
n = Number of maturity period.
Cost of preference share capital is the annual preference share dividend by the net proceeds from the sale of preference share.
There are two types of preference shares - irredeemable and redeemable. Cost of redeemable preference share capital is calculated with the help of the following formula:
Kp = Dp / Np
Where,
Kp = Cost of preference share
Dp = Fixed preference dividend
Np = Net proceeds of an equity share
[Post Image Courtesy of Stuart Miles at FreeDigitalPhotos.net]
Cost of irredeemable preference share is calculated with the help of the following formula:
Kp = [Dp + (P-Np) / n] / [(P+Np) / 2]
Where,
Kp = Cost of preference share
Dp = Fixed preference share
P = Par value of debt
Np = Net proceeds of the preference share
n = Number of maturity period.
Cost of Preference Share Capital
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Friday, May 05, 2017
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