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Cost of Preference Share Capital

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

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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 Cost of Preference Share Capital Reviewed by Blog Editor on Friday, May 05, 2017 Rating: 5

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