Preferred stock valuation. TXS Manufacturing has an outstanding preferred stock issue with a par value of $65 per share. The preferred shares pay dividends annually at a rate of 10%.
a.	What is the annual dividend on TXS preferred stock?
b.	If investors require a return of 8% on this stock and the next dividend is payable 1 year from now, what is the price of TXS preferred stock?
c.	Suppose that TXS has not paid dividends on its preferred shares in the past 2 years, but investors believe it will start paying dividends again in 1 year. What is the value of TXS preferred stock if it is cumulative and if investors require an 8% rate of return?
Solution
a.	What is the annual dividend on TXS preferred stock?
	Par value
	Annual dividend rate
	Annual dividend payment
b.	If investors require a return of 8% on this stock and the next dividend is payable 1 year from now, what is the price of TXS preferred stock?
	Dividend expected next year
	Required return
	Preferred stock value
c.	Suppose that TXS has not paid dividends on its preferred shares in the past 2 years, but investors believe it will start paying dividends again in 1 year. What is the value of TXS preferred stock if it is cumulative and if investors require an 8% rate of return?
	Dividends in arrears expected next year
	Required return
	Value today of dividends in arrears
	Value today of remaining regular dividends
	Preferred stock value