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Explain about the following (i) Ordinary shares (ii) Preference shares (iii) Cost of capital (iv) Weighted...

Explain about the following

(i) Ordinary shares

(ii) Preference shares

(iii) Cost of capital

(iv) Weighted average cost of capital (WACC)

Solutions

Expert Solution

(i)Ordinary shares ,also called commen shares, these are the shares which sold on the public exchange. Each share holder of ordinery share entiled to ownership aand divident. The divident that getting will not be stable. It may high, low and even null also. Its depend on the profit of company. They habe voting right in company as per number of share.

(ii)Preference share , Its commonly known as preffered share. Which means The earning(divident) the get from preference share will be constant or on a fixed rate. It will not depend on the profit of company. Preference share holders have no voting right .Their divident will distributed just before the equity share holders divident.

(iii)Cost of Capital is the rate of return the firm expects to earn from its investments to increase the value of the firm in the market place. In other words, it is the rate of return that the suppliers of capital require as compensation for their contribution of capital.

(iv) The weighted average cost of capital (WACC) is a calculation of a firms cost of capital in which each category of capital like equity share,preference share,bond and any other long-term debt are proportionately weighted and are included in a WACC calculation.

ekkarill92 answered 1 year ago
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