1. Moraine, Inc., has an issue of preferred stock outstanding that pays a $3.50 dividend every year in perpetuity. If this issue currently sells for $85 per share, what is the required return?
2. TwitterMe, Inc., is a new company and currently has negative earnings. The company’s sales are $2.7 million and there are 130,000 shares outstanding. If the benchmark price–sales ratio is 4.3, what is your estimate of an appropriate stock price? What if the price–sales ratio were 3.6?