Preference Shares ($1 par, 10% p.a. cumulative) Total $1,800,000

The preference share is trading in the market at $1.60 and a dividend has just been paid. The dividends are fully franked. The company tax rate is 30%.

In order to calculate the before tax cost of preference share, the required equation is (Dividend /market preference share price) = (0.1/1.6) = 0.0625

Why do I need to divide 0.0625 by 0.7 (1-0.3) although it is before tax.