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If a company's preferred stock has a sinking fund that calls for the retiring 8 percent...

If a company's preferred stock has a sinking fund that calls for the retiring 8 percent of the initial issue of preferred stock each year at par, how would the cost of preferred stock change and be handled in the WACC calculation?

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when a company's preferred stock has a sinking fund which calls for retirement at 8% per annum of Initial preferred stock issue par value, then it should be considered in the computation of weighted average cost of Capital (WACC). Retirement of preferred stock annually at a certain % tends to decrease the outstanding commitment of preferred shares capital every year. However Company should do such retirement at a cost which is known as retirement cost. This retirement cost is an element of capital cost for the organisation which should be reflected in the overall weighted average cost of capital of the Company proportionately. The overall cost of preferred stock gradually decreases every year and it is taken accordingly in WACC computation every year.

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