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Dorpac Corporation has a dividend yield of 1
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?
Expert Solution
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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