Question

Asked Dec 7, 2019

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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?

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.

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...

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