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Dorpac Corporation has a dividend yield of 1.7%. Dorpac's equity cost of capital is 7.4%, 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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a). Computation of the expected growth rate of Dorpac's dividends:-

Expected growth rate = Cost of equity capital - Dividend yield

= 7.4% - 1.7%

= 5.7%

b). Computation of the expected growth rate of Dorpac's share price:-

Dividend has the constant growth rate, so the growth rate of Dorpac's share price = 5.7%

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