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Business valuations and market efficiency

Question 10

Cost of preference shares

Bishop Co has 100,000 18% preference shares in issue with a nominal value of
$0.50 each. The current ex div market value is $1.75.

Calculate the cost of the preference shares.

Kp = D/P 0

Ke = ($0.50 × 18%)/$1.75 = 0.051 or 5.1%

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