Explanation

For perpetual preference shares, the value is calculated using the formula:

$V = \frac{D}{r}$

Where:

• $V$ = Value of the preference share
• $D$ = Annual dividend per share
• $r$ = Required rate of return

For Preference Share 1:

• D_1 = \`6` $
• $r_1 = 8\% = 0.08$
• V_1 = \frac{\`6}{0.08} = \$75`$

For Preference Share 2:

• D_2 = \`8` $
• $r_2 = 11\% = 0.11$
• V_2 = \frac{\`8}{0.11} = \$72.73`$

Comparison:

• V_1 = \`75` $
• V_2 = \`72.73` $
• $V_1 > V_2$

Therefore, the value of Preference Share 1 is greater than the value of Preference Share 2.

Key Insight: Even though Preference Share 2 has a higher dividend ($8 vs $6), it also has a significantly higher required rate of return (11% vs 8%). The higher discount rate more than offsets the higher dividend, resulting in a lower present value for Preference Share 2.