A firm pays a dividend of $1.20 per share in perpetuity with a zero growth rate. The required return is 10%. We need to find the value of the preferred stock.

1. Problem Description

A firm pays a dividend of $1.20 per share in perpetuity with a zero growth rate. The required return is 10%. We need to find the value of the preferred stock.

2. Solution Steps

Since the dividend is paid in perpetuity with a zero growth rate, we can use the following formula to calculate the value of the preferred stock:

$Value = \frac{Dividend}{Required Return}$

The dividend is $1.20 per share, and the required return is 10%, or 0.

1

0. Plugging these values into the formula, we get:

$Value = \frac{1.20}{0.10} = 12$

3. Final Answer

The value of the firm's preferred stock is $

1

2. So the answer is a. $12.