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?

Question

Desiree Abbott

Business

30 September, 11:27

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?

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Answers (1)

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Jayvon Dudley · Answer 1

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

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%.