a company issues 12,000, 12 per cent perpetual preference shares of 100 each. company is expected to pay 2 per cent as flotation cost. calculate the cost of preference shares assuming to be issued at (a) face value of par value, (b) at a discount of 5% and (c) at a premium of 10%.
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Cost of preference shares
(a) face value of par value
Purchase price = 100
Floatation cost = 2% = 2
cost price. = 102
cost of preference share = ₹12,24,000
(b) At a discount of 5%
Purchase price = 100-(5% of 100 )
= 95
Floatation cost = 2%= 1.9
cost price = 96.9
cost of preference share = ₹11,62,800
(c) at a premium of 10%
Purchase price = 100+(10% of 100)
= 110
Floatation cost = 2%= 2.2
cost price = 112.20
cost of preference share = ₹13,46,400
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