Cost of preferred stock financing formula
Simply put, the cost of preferred stock is the rate of return that is yielded by the specific company's preferred stock for you as a preferred shareholder. "Preferred" in this case actually means that if you are a shareholder with these stocks, you are given priority over other types of shareholders. The cost of capital is comprised of the costs of debt, preferred stock, and common stock. The formula for the cost of capital is comprised of separate calculations for all three of these items, which must then be combined to derive the total cost of capital on a weighted average basis. To derive the cost of debt, multiply the Once they have the rate, they can compare it to other financing options. The cost of preferred stock is also used to calculate the Weighted Average Cost of Capital. WACC WACC is a firm’s Weighted Average Cost of Capital and represents its blended cost of capital including equity and debt. The WACC formula is = (E/V x Re) + ((D/V x Rd) x (1-T