Question

Why tax is not condideted for calculating cost of prefrence share capital?

Answer 1

Cost of Preference Capital. ... Because dividends are paid out of profits after taxes, the question of after tax or before tax cost of preference shares does not arise as in case of cost of debentures. Preference shares can be divided into: Irredeemable preference shares.

Answer 2

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Because the dividends paid out use after-tax dollars, preferred shares do not offer the firm an immediate tax deduction, as interest paid on debt would. ✿