A preference share pays an annual dividend of Rs. 12 and currently sells for Rs. 100. Ignoring issue costs, what is the cost of preference shares?
Correct answer: C. 12%
- A. 8%
- B. 10%
- C. 12%
- D. 20%
Explanation
The cost of irredeemable preference shares is calculated as the annual preference dividend divided by the current market price. Rs. 12 divided by Rs. 100 gives a cost of 12 percent.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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