- This topic has 2 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
Dear sir,
How do we consider preference shares in WACC calculation?
I think it should be considered same as bank loan.
The market value of preference shares will be its book value as for bank loan.
Only the treatment of dividend of the preference shares will be different from the bank loan as it is not tax deductible.Thanks 🙂
Dear sir,
I just got that the MV of the preference shares will be given in exam. So I will convert the book value of the preference share to its MV and then will use it.
Preference shares are included in the WACC computation – they are a source of finance.
The cost is calculated in exactly the same was as for ordinary shares (except easier since, of course, there is no growth so ‘g’ in the formula is zero).
When calculating the WACC we use the total market value of the shares (just as we do for ordinary shares).
- The topic ‘Preference share consideration in WACC’ is closed to new replies.