Preference share cost

For a simple irredeemable preference share paying a constant annual dividend, cost is annual preference dividend divided by ex-dividend market price. Unlike the simple debt-interest case, ordinary corporate tax relief is not assumed for preference dividends. Redeemable or convertible terms require the relevant terminal cash flows to be incorporated. Preference shares have rights ahead of ordinary shares in specified respects, but their exact legal and accounting classification depends on their terms. Include them as a separate financing component in WACC where their risk and required return differ from ordinary equity and debt.