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 Incs shares is $50.

c. Would you invest in this company if your required rate of return is 18 percent? Why?