CAF-7 · Chapter 9 · Question 10 of 15
How is the cost of irredeemable preference shares calculated?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Preference dividend divided by the ex-dividend market price of the preference shares
Explanation
Because irredeemable preference shares pay a constant dividend into perpetuity without ever returning the principal, their cost is simply calculated as Kp = D / Po (Dividend divided by the current ex-dividend market value).
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