A Firm Has $3 Million Market Value and It Sells

question 80

Multiple Choice

A firm has $3 million market value and it sells preference shares at $100 per share. If the annualdividend on the preference share is $9 and it trades at $95, what is the cost of preference share capital?

• A) 9.47%
• B) 10.41%
• C) 8.75%
• D) 10.21%

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Definitions:

Purchasing Power

The value of currency expressed in terms of the amount of goods or services that one unit of money can buy.

Transaction

An exchange between a business and one or more external parties to a business or a measurable internal event such as the use of assets in operations.

Exchange

A marketplace where securities, commodities, derivatives and other financial instruments are traded.

Unearned Revenue

Money received by a company for goods or services that have yet to be delivered or performed.