Question: 1. (Common stock valuation) Schlumberger is selling for $64.91 per share and paid a dividend of $1.10 last year. The dividend is expected to grow at 4 percent indefinitely. What is the stock's expected rate of return?
2. (Cost of preferred stock) Candy Inc. issued preferred shares with par value of $100 and 5% annual preferred dividends. If the market price of Candy Inc is $35 per share,
a. Calculate the cost of preference shares.
b. Would you invest in Candy Inc preferred shares if your required rate of return is 10 percent? Why?