8-4. (Preferred stock valuation) Davis Plc. has in its share capital 100,000, $10 preferred shares paying 12 percent dividends. They are currently trading at $40 per share. a. Calculate the cost of...

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Extracted text: 8-4. (Preferred stock valuation) Davis Plc. has in its share capital 100,000, $10 preferred shares paying 12 percent dividends. They are currently trading at $40 per share. a. Calculate the cost of preference shares. b. Calculate the price of Davis Plc. preference shares if the cost of preferred shares is 15 percent.


Extracted text: 8-10. (Common stock valuation) The dividend policy of Scorpio Inc. has been recently changed to payout 40 percent of its earnings to shareholders. The company has just paid dividends of $3 per share. a. Calculate the growth rate of dividends if the return on equity is 12 percent. b. Calculate the cost of equity capital if the market price of Scorpio Inc's shares is $50. c. Would you invest in this company if your required rate of return is 18 percent? Why?