Preference Share Intrinsic Value Calculation: Example with $1.2 Semi-Annual Dividend

To calculate the intrinsic value of a preference share, we need to use the formula for the present value of dividends:

Intrinsic Value = Dividend / Cost of Capital

In this case, the dividend is $1.2 per share, and the cost of capital is 12.2% compounded annually.

Dividend = $1.2 Cost of Capital = 12.2% = 0.122

Intrinsic Value = $1.2 / 0.122 Intrinsic Value = $9.84

Therefore, the intrinsic value of the preference share is $9.84.