If the capital structure includes preferred equity, the yield rate can be used as the cost of that component. If the dividend is at or close to the current market rate for preferred stocks with comparable features and risk, then the stated rate can be a proxy for market yield. If the rate is not close to a current market yield rate, then the analyst should estimate what a current market yield rate would be for that component of the company's capital structure.
Cost of preferred equity:
KP is the preferred dividend
P is the market price of the stock
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