Cost of Preference and Equity Capital Assignment Help

Cost of Preference and Equity Capital Assignment Help
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Definition of Cost of Preference Share Capital

Cost of preference share capital is recognised as a dividend that a company commits to pay. Precisely put, this is the cost which has no relevance with the project evaluation since it does not add up to further capital. In order to evaluate additional cost of obtaining the marginal cost, it is important for the evaluator top search for the yield on the preference share based which prevails in the current market value that is carried by a preference share. In other words, Cost of Preference Share Capital is remarked as amount paid which a company has to pay to its shareholders in the form of dividend.  BookMyEssay provide Cost of Preference and Equity Capital assignment help to those students who are not able to write homework and assignment on this topic.

Discussing about the Preference share, it is termed as small unit that is featured in company’s capital and carries a fixed rate of dividend. This dividend is liable to be paid by the company to when it earns profit. Such dividend payable is not an amount which is tax-deductible thus, it frees a company from making tax adjustments or to be compared with cost of debt. Further explained in the Cost of Preference and Equity Capital homework help, preference share gets issued at dividend with the state rate charged on its face value. Even though it is not a necessary debt to be paid it solely depends on the profit ratio that a company earns. Still, it is recognised as a preference of payment which stands above equity for dividend payment along with asset distribution in case the company liquidates. So, if a company fails to pay dividend on preference shares, it cannot pay anything to the equity shares. So, a company targets to successfully clear the dividend payments to its preference shareholders.

Stating the Formula for Cost of Preference Share

The Preference Share are categorised as Redeemable and Irredeemable. The formula this calculation is

Kp = Dp+((RV-NP)/n )/ (RV+NP)/2

Kp = Dp/NP

In the above formula

  • Kp stands for Cost of Preference Share
  • Dp is the Dividend to be paid on each preference share
  • RV stands for Redemption Value
  • NP is the net proceeds that are obtained from issue of preference share
  • N is the time period till which the preference share matures

Some other condition related to Cost of preference share capital is that it is perceived from the angle of interest which is charged on the amount that is carried by the debentures. Simply stating, it is more of a fixed charged to be paid to the stakeholders but does not stand as a contractual obligation. However, from legal perspective interest payment stands contractual in nature going by the terms and conditions of issue agreement which the company has fixed earlier, without considering the amount of profits earned.

Determining the Cost of Equity Share Capital

Cost of Preference and Equity Capital essay assignment help also deals with the major aspect of acquiring the cost of equity share capital. To begin with, it is important for students to understand that equity dividends do not stand equal to Interest and Preference dividends. This is because the other two are fixed in principle. As stated above, the dividend payment is subject to earnings available along with the future prospects of a firm if it grows. It won’t be wrong to say that when a company earns profit, the Equity shareholders stand as last to claim for the profits and get the amount once the preference shareholders get their stakes. One can evaluate market value of shares with the consideration of the Equity dividends which are expected to be returned.

Preference shares showcase also give a sense of ownership in the company and are entitled to receive a dividend which is fixed, but comes with the condition of profit availability. They come first in receiving the dividend leaving second place for the equity shareholders. Also, their divided are not taken as spending which is eligible for taxation.

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