Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
-By
Akanksha
Aishwarya
Cost of preference capital and
weighted average cost of capital
COST OF PREFERENCE SHARE
CAPITAL
MEANING-
Cost of preference share capital is that part
of cost of capital in which we calculate the
amount which is payabl...
FORMULA-
Cost of pref. share capital’s formula is -
Cost of Pref. Share capital (Kp) = amount of preference
dividend/ Pref...
In adjustment case cost of pref. share capital
will change and we can calculate it with
following way-
Kp = D/ NP
D =Annua...
At the time of maturity, we need to calculate
cost of pref. share capital with following
formula -
Cost of redeemable pref...
D =Annual dividend
MV = Maturity value of pref. shares
NP = Net proceeds of pref. shares
N= number of years
Suppose, we have to pay Rs. 10, 00,000 but at the time of issue
of pref. share, we had paid Rs. 2 per issue of pref. share...
Cost of pref. share capital
= D + (MV – NP )/n / ½(MV +NP) X 100
= 100,000 + ( 10,50,000- 9,80,000 )/ ½ ( 10,50,000 +
9,80...
WEIGHTED AVERAGE COST OF
CAPITAL
The weighted average cost of capital (WACC) is
the rate that a company is expected to pay on average
to all its security h...
Companies raise money from a number
of sources:
common equity, preferred stock,
straight debt, convertible debt, exchangea...
formula-
Businesses often discount cash flows atWACC to
determine the Net PresentValue (NPV) of a project,
using the formu...
Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V =...
Thank you
Upcoming SlideShare
Loading in …5
×

cost of preference share capital and weighted average cost

8,525 views

Published on

Published in: Business
  • Be the first to comment

cost of preference share capital and weighted average cost

  1. 1. -By Akanksha Aishwarya Cost of preference capital and weighted average cost of capital
  2. 2. COST OF PREFERENCE SHARE CAPITAL
  3. 3. MEANING- Cost of preference share capital is that part of cost of capital in which we calculate the amount which is payable to preference shareholders in the form of dividend with fixed rate.
  4. 4. FORMULA- Cost of pref. share capital’s formula is - Cost of Pref. Share capital (Kp) = amount of preference dividend/ Preference share capital Kp = D/P
  5. 5. In adjustment case cost of pref. share capital will change and we can calculate it with following way- Kp = D/ NP D =Annual pref. dividend, NP = Net proceed = Par value of Pref. share capital – discount – cost of floatation Or NP = Par value of pref. share capital + Premium
  6. 6. At the time of maturity, we need to calculate cost of pref. share capital with following formula - Cost of redeemable pref. share capital -
  7. 7. D =Annual dividend MV = Maturity value of pref. shares NP = Net proceeds of pref. shares N= number of years
  8. 8. Suppose, we have to pay Rs. 10, 00,000 but at the time of issue of pref. share, we had paid Rs. 2 per issue of pref. share. So, net proceed is Rs. 9,80,000 but if this amount is payable after 10 years at 10% premium, this will also benefit to pref. share capital and total cost of pref. share capital will increase. Rate of dividend is 10%.
  9. 9. Cost of pref. share capital = D + (MV – NP )/n / ½(MV +NP) X 100 = 100,000 + ( 10,50,000- 9,80,000 )/ ½ ( 10,50,000 + 9,80,000) x 100 = 100,000 + 7,000/ 10, 15,000 X 100 = 10.54%
  10. 10. WEIGHTED AVERAGE COST OF CAPITAL
  11. 11. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. TheWACC is the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere.
  12. 12. Companies raise money from a number of sources: common equity, preferred stock, straight debt, convertible debt, exchangeable debt, warrants, options, pension liabilities, executive stock options, governmental subsidies, and so on
  13. 13. formula- Businesses often discount cash flows atWACC to determine the Net PresentValue (NPV) of a project, using the formula- NPV = PresentValue (PV) of the Cash Flows discounted atWACC.
  14. 14. Where: Re = cost of equity Rd = cost of debt E = market value of the firm's equity D = market value of the firm's debt V = E + D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc = corporate tax rate
  15. 15. Thank you

×