Answer to Question #151786 in Finance for henry

Question #151786
Suppose a company wishes to issue 12% preference shares at N$1 each. The preference shares currently trade at 85.75 cents and floatation costs are 5 cents per share. Determine the cost of preference shares.
1
Expert's answer
2020-12-24T12:52:34-0500

To get the floatation rate ;


F=5 cents per share


Current preference rate =85.75cents


Floatation rate =


=5.83%


The cost of preference share is therefore 12%


=85.75(1-0.0583)


=14.87

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