Solved: What price should pay for the preference share, Managerial Accounting

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What price should pay for the preference share

Response to the following problem:

You are thinking of buying BISCO's a preference share Rs 100 par value that will pay a dividend of 12 per cent perpetually.

(a) What price should you pay for the preference share if you are expecting a return of 10 per cent?

(b) Suppose that BISCO can buy back the share at a price of Rs 110 in seven years. What maximum price should you pay for the preference share?

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Managerial Accounting: What price should pay for the preference share

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