Answer: greater than the value of Preference Share 2.

## 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 **Calculating the value of Preference Share 1:** \[ V_1 = \frac{\$6}{0.08} = \$75 \] **Calculating the value of Preference Share 2:** \[ V_2 = \frac{\$8}{0.11} = \$72.73 \] **Comparison:** - Preference Share 1 value = $75 - Preference Share 2 value = $72.73 Since $75 > $72.73, 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 annual dividend ($8 vs $6), it also has a significantly higher required rate of return (11% vs 8%). The higher discount rate reduces the present value of the perpetual dividend stream more than the higher dividend amount increases it, resulting in a lower overall value for Preference Share 2.

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