Preference
Share Valuation Example
Preference share provides
a constant rate of return (Dividend) to the preference share holder and
therefore future dividend may be discounted by perpetuity formula.
Preference Share price = Dividend / Cost of Capital
Preference
Share Valuation Example
Two companies A and B are
offering dividend of $ 8 and $ 10. Cost of capital of both companies is 5%
& 6 % respectively. Calculate the share price.
Solution
Dividend
|
$ 8
|
$ 10
|
Cost
of capital
|
5%
|
6%
|
Share
price = Dividend/Cost of Capital
|
160
|
166.67
|
=
$8/5%
=
$ 8/.05
= $ 160
=
$10/6%
=
$ 10/.06
=
$ 166.67
