Dorpac Corporation has a dividend yield of 2.4 %. ​Dorpac's equity cost of capital is 8.4 %​,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?

Question
Asked Dec 7, 2019
8 views
 
Dorpac Corporation has a dividend yield of 2.4 %. ​Dorpac's equity cost of capital is 8.4 %​,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?
check_circle

Expert Answer

Step 1

a) According to the dividend growth model, required rate of return of a stock is the sum of the dividend yield and growth in dividends.

help_outline

Image Transcriptionclose

r; = Dividend yield + growth rate of dividends(g) 8.4% = 2.4%+ g g = 6.0%

fullscreen
Step 2

Answer: expected growth rate of dividend is 6.0%

Step 3

The value of the stock is dependent on the dividend growth rate and cost of equity. If the cost of equity remains constant and divi...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Find the present value and the compound discount of $6 600.00 due in seven years, three months, if i...

A: It is given that,Future value is $6,600.Interest rate is 7.2% compounded quarterly. So, interest rat...

question_answer

Q: JaiLai Cos. stock has a beta of 0.9, the current risk-free rate is 6.5 percent, and the expected ret...

A: Cost of Equity: It is the rate of return which is the least satisfactory return an investor may anti...

question_answer

Q: What is the present value of an investment that will generate $100,000 in the first year, $200,000 i...

A: Present value of each cash flows is calculated in the excel below using cost of capital as 5%.Note: ...

question_answer

Q: Wha is LTV and CLV?

A: Computation:

question_answer

Q: Problem 11-13 Weight of Preferred Stock (LG11-4) FarCry Industries, a maker of telecommunication...

A: Computation of the weight of preferred stock:Hence, the weight that must be used for preferred stock...

question_answer

Q: critically discuss and evaluate the issues in the langtry benchmark-setting decision

A: Issues in the Langtry benchmark-setting decision:It is a case study that is developed to readers and...

question_answer

Q: Explain the principle of immunization when used with a bond portfolio. What is bond portfolio imm...

A: Hey, since there are multiple subparts questions posted, we will answer first three question. If you...

question_answer

Q: Please give me referenced information on currency inconvertability in Barbados

A: Barbadian Dollar:The national currency of Barbados is Barbadian Dollar and it is also known as Bajan...

question_answer

Q: True or false? the statement of cash flows is thr addition of cash flows from operations, investing,...

A: The cashflow statement represents the cash balance and income due the various activities such as ope...