Share price of preference Share
Preference share provides constant cash inflow for indefinite
period and therefore share price of preference share can be determined by
following equation. It is important to remember that cost of equity and share
price has inverse relationship. It means that if desired rate of return
increases then share price will be low.
Share Price
= Divided/Cost of equity
Example for Preference Share price
|
Dividend
|
1.2
|
|
Cost of Equity
|
18%
|
|
|
|
Calculate
the share price?
Solution
Share Price = Divided/Cost
of equity
= 1.2/.18
=6.667
