Question

Dorpac Corporation has a dividend yield of 1.5%. Its equity cost of capital is 8%, and its dividends are expected to grow at a constant rate. a. What is the expected growth rate of Dorpac’s dividends? b. What is the expected growth rate of Dorpac’s share price?

Answer 1

• The expected growth rate of Dorpac’s dividends is 6.5%
• The expected growth rate of Dorpac’s share price 6.5%

Step-by-step explanation:

a> the expected growth rate of Dorpac’s dividends= Div Yld + g =Ce , so g= 8% – 1.5% = g = 6.5%.

b> With constant dividend growth, the expected growth rate of Dorpac’s share price is also expected to grow at rate g = 6.5% .