Forums
Back
Coc
Financial Management
What is the meaning of last 3 lines? (ie The cost of.....principal payments) Please explain in terms of formula and with numerical example
Answers (1)
Since the preference shares are redeemable, the share holder will receive the dividend payment until the year of redemption and the redemption amount to be paid to him. Therefore, IRR method is used to calculate the cost of redeemable preference share. Cash outflows are yearly dividend and redemption value and the inflows are Net proceeds. So the discount rate which will make the cash outflows and cash inflows associated with redeemable preference shares will be the cost of capital.
Your Reply