1. What is Cost of Preferred Share?

The cost of preferred share represents the dividend yield on a company's preferred stock. It's the effective rate of return that the preferred shares provide based on their dividend payments and current market price.

2. How Does the Calculator Work?

The calculator uses the cost of preferred share formula:

Where:

• \( Dividend \) — Annual dividend payment per preferred share (USD)
• \( Price \) — Current market price per preferred share (USD)

Explanation: The formula calculates the dividend yield, which represents the cost to the company for issuing preferred shares and the return to investors.

3. Importance of Cost of Preferred Share

Details: This calculation is important for both companies and investors. Companies use it to determine their cost of capital, while investors use it to compare the returns of different preferred stock offerings.

4. Using the Calculator

Tips: Enter the annual dividend payment in USD and the current market price per share in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is this different from cost of common equity?
A: Preferred shares typically have fixed dividends, while common stock dividends can vary. The cost of common equity is usually calculated using different models like CAPM.

Q2: What's a typical cost of preferred share?
A: It varies by company and market conditions, but typically ranges between 5-10% for established companies.

Q3: Should I use annual or quarterly dividend?
A: Use the annual dividend amount. If you know the quarterly dividend, multiply it by 4.

Q4: Does this account for taxes?
A: No, this is the pre-tax cost. For after-tax cost, multiply by (1 - tax rate).

Q5: Why is this important for WACC?
A: Cost of preferred stock is one component in calculating a company's Weighted Average Cost of Capital (WACC).