TXS Manufacturing has an outstanding preferred stock issue with a par value of $67 per share. The preferred shares pay dividends annually at a rate of 11%. a. What is the annual dividend on TXS preferred stock? b. If investors require a return of 5% on this stock and the next dividend is payable one 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 two years, but investors believe that it will start paying dividends again in one year. What is the value of TXS preferred stock if it is cumulative and if investors require a(n) 5% rate of return?

Given Data,

Par Value of preferred stock = $67

Annual dividend yield = 11%

Part A.

Annual Dividend = $67 × 11%

Annual Dividend = $7.37

Thus, the Annual Dividend on preferred stock is $7.37.

Part B.

Rate of return = 5%

Price of preferred stock = $7.37 / 5%

Price of preferred stock = $147.4

Price of preferred stock is $147.4.

Part C.

Therefore the company hasn’t paid their dividend for last two year.

The cumulative dividend for last two year = $7.37 + $7.37

The cumulative dividend for last two year = $14.74

Thus,  

Current Price of preferred stock = $14.74 + $147.4

Current Price of preferred stock = $162.14

The Price of preferred stock after two year is $162.14.