Divide the annual dividend by the price per share and multiply by 100 to find the cost of preferred stock. The Cost of Preferred Stock Calculator helps determine the cost of financing through preferred stock.
Preferred stockholders receive fixed dividends, making this calculation essential for businesses evaluating capital costs. This tool is crucial for estimating the weighted average cost of capital (WACC) and understanding the financial implications of issuing preferred stock.
Formula:
Contents
CPS = DPS / PPS ∗ 100
| Variable | Definition | Units |
|---|---|---|
| CPS | Cost of preferred stock | Percentage (%) |
| DPS | Dividend per share | Dollars ($) |
| PPS | Price per share | Dollars ($) |
Solved Calculations:
Example 1: Calculating the cost of preferred stock for a $2 dividend per share and $50 price per share.
| Step | Value | Explanation |
|---|---|---|
| Dividend Per Share (DPS) | $2 | Annual dividend per share |
| Price Per Share (PPS) | $50 | Current market price |
| Cost of Preferred Stock (CPS) | 4% |
Example 2: Calculating CPS for a $3.5 dividend per share and $70 price per share.
| Step | Value | Explanation |
|---|---|---|
| Dividend Per Share (DPS) | $3.5 | Annual dividend per share |
| Price Per Share (PPS) | $70 | Current market price |
| Cost of Preferred Stock (CPS) | 5% |
What is the Cost of Preferred Stock Calculator?
The Cost of Preferred Stock Calculator is a specialized tool designed to compute the cost of preferred stock, a key component in evaluating a company’s weighted average cost of capital (WACC).
This calculator is indispensable for finance professionals, investors, and analysts aiming to assess the financial health and investment potential of a company. By determining the cost of preferred stock, users can better understand its impact on overall capital structure and profitability.
This calculator requires inputs such as the preferred stock dividend, market price of the stock, and any associated flotation costs. It then applies a formula to calculate the cost of preferred stock, providing a precise value that aids in financial decision-making and valuation processes.
The tool simplifies the complex task of manually evaluating costs, making it more accessible for users of varying expertise.
Whether you’re calculating the cost of preferred stock for a specific investment or incorporating it into a broader WACC analysis, this tool ensures accuracy and saves time. It is highly valuable for corporate finance, portfolio management, and academic purposes.
Final Words
All in all, the Cost of Preferred Stock Calculator is an essential resource for professionals and individuals seeking precise cost assessments of preferred stock. Its accuracy and simplicity make it a trusted choice for making informed financial decisions.
