Cost of Preference Capital

This article discusses the cost of preference capital, which is the return that a company must earn on its preference share capital in order to leave unchanged the market price of its stock. The cost of preference capital can be calculated using two formulas:

• **Formula for irredeemable preference shares:** Kp = D / NP
• **Formula for redeemable preference shares:** Kpr = D + (MV – NP) / (2 * (MV + NP))

Where:

• D = Annual preference dividend
• MV = Maturity value of preference shares
• NP = Net proceeds of preference shares

For more information, please see the following resources:

• Cost of Preference Capital – Investopedia
• Cost of Preference Capital – Accounting Coach