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How to calculate Cost of Preference Share Capital?

Cost of Preference Share Capital:  An amount paid by company as dividend to preference shareholder is known as Cost of Preference Share Capital. Preference share is a small unit of a company’s capital which bears fixed rate of dividend and holder of it gets dividend when company earn profit. Dividend payable is not a tax deductible amount. So, there is no tax adjustments required for comparing with cost of debt. Formula for Cost of Preference Share: Irredeemable Preference Share Redeemable Preference Share K p  = Dp/NP K p  = D p +((RV-NP)/n )/ (RV+NP)/2 Where, K p  = Cost of Preference Share D p  = Dividend on preference share NP = Net proceeds from issue of preference share (Issue price – Flotation cost) RV = Redemption Value N = Period of preference share Example:  A company issues 20,000 irredeemable preference share at 8% whose face value is Rs.50 each at 4% discount. Find out the Cost of ...
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What is the difference between Cheque book and Pass book?

 Cheque book is issued by bank in customers / account holder request. With the help of this book account holder can withdraw cash from his/her account. Bank does not charge any fee to issued cheque book to its customer. But afterward bank charges some amount for using bank facility like cheque book, Debit card etc.So, Automatic some definite amount deducted from customer bank account. Pass book is  also issued by bank to its customer. It helps to record all the bank related activity according to date that is withdrawal and deposit. It is recorded by bank but the book is kept by customer to know the current balance of  his /her account.  Point of difference Pass book Cheque book What is the meaning of pass book and cheque book? Passbook is a book in which all withdrawal and deposit against customer account is recorded.   Cheque book is a book of cheques which are used to withdrawal the money to b...
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What is Working Capital Leverage (WCL)?

Working capital leverage: It shows the sensitivity of the return on investment with change in current assets. As we all know the working capital is difference between current assets and current liabilities. And the working capital is use for meeting day to day capital requirements in business operations. With the help of working capital leverage we will find out how productivity or profitability of a business is affected by change in current assets. Formula: Working Capital Leverage (WCL) = % ∆ ROE / % ∆ CA Or If % decreases in current assets: WCL= CA / TA - ∆ CA If % increases in current assets: WCL = CA / TA + ∆ CA Where, CA = current assets TA = total assets ROE = return of capital employed or return on investment ∆ CA = change in current assets Example: Company A total assets are Rs. 17, 60, 800 and the current assets are Rs. 6, 00,000. The fixed assets are Rs. 11, 60, 800. Find out the working capital leverage if the current asset increases by 15...
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