The correct answer is A. Rs 40.00.
The value of a preferred stock is equal to the present value of its future dividends. The formula for calculating the present value of a perpetuity is:
$PV = \dfrac{D}{r}$
where:
- $PV$ is the present value
- $D$ is the annual dividend
- $r$ is the required rate of return
In this case, we are given that $D = 60$ and $r = 20\%$. Substituting these values into the formula, we get:
$PV = \dfrac{60}{0.20} = 300$
However, this is not the final answer. We need to take into account the fact that preferred stocks are not always paid out in full. In some cases, the company may not be able to afford to pay the preferred dividend, and in these cases, the preferred shareholders will not receive any dividends. To account for this risk, we need to discount the present value of the dividends by a factor of $\dfrac{1 – (1 + r)^{-n}}{r}$, where $n$ is the number of years until the dividends are paid out. In this case, we are given that $n = 1$, so the present value of the dividends is:
$PV = \dfrac{60}{0.20} \cdot \dfrac{1 – (1 + 0.20)^{-1}}{0.20} = 40$
Therefore, the value of the preferred stock is Rs 40.00.
Option B is incorrect because it is the value of the preferred stock if the dividends were paid out in full. Option C is incorrect because it is the present value of the dividends if the dividends were paid out in full and there was no risk of default. Option D is incorrect because it is the value of the preferred stock if the dividends were paid out in full, there was no risk of default, and the company was guaranteed to pay out the dividends for the next 10 years.