Estimating Cost of Capital

It will help in the reduction of tax liability of the company and to calculate cost of debt some adjustments are to be done by the company. Cost of preference capital is the sum of amounts of dividends that are paid and the expenses which are incurred for the raising of preference shares. The dividend that is usually paid on the preference shares cannot be deducted from tax as it is the appropriation of profits and cannot be considered to be an expense. The cost of equity capital in its case it’s a bit of difficult since the shareholders of equity don’t usually receive any kind of interest or even dividends. Dividend shares that are put on equity shares have a variation that also depends on the profit that is earned by the company.