Question

In calculating the cost of capital, which sources of capital do we consider?

13. Is cost of equity grater than cost of preferred stock? Why?

Answer 1

In Calculating the cost of capital we are considering the all types of capital like Debt Fund, Preferred Share Capital, Equity Capital and other free reserves. Notes and others alsos considered in debt fund.

Cost of Preferred have the fixed amount of dividend payable to Preference shareholders and they have the preference over the payment to Equity Holders so they have the lesser risk and lesser cost. But Equity have the greater expected rate of return or cost of Equity because they received the payment at the end or after making the all payment for expesnes and liabilities. So this is the reason behind the Cost of equity grater than cost of preferred stock