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Cost of Equity of preference share

TThapa9y ago
A 4% irredeemable $0.8 preference shares is being traded for $1.2 cum-div currently in company that pay corporation tax at rate of 20%.
John MoffatJohn MoffatTutor9y ago#1
So? I assume you are wanting to calculate the cost of the preference shares. You calculate it in exactly the same way as you calculate the cost of equity (but of course the dividend growth rate is zero).
TThapa9y ago#2
Ke=0.8/1.2-0.8 =2% Is this okay?
John MoffatJohn MoffatTutor9y ago#3
No! (Why are you attempting questions for which you do have printed answers?! You should be using a Revision Kit from one of the ACCA approved publishers - they have answers and workings.) The dividend is 4% x $0.80 = $0.032. It is not $0.80!!!
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