Dorpac Corporation has a dividend yield of 1.3 %1.3%. Its equity cost of capital is 7.4 %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?

(A) 6.1%

(B) 6.1%

Explanation:

Dorpac corporation has a dividend yield of 1.3%

Its equity cost of capital is 7.4%

(a) The expected growth rate of Dorpac dividend can be calculated as follows

= Equity cost of capital-Dividend yield

= 7.4%-1.3%

= 6.1%

(b) Since the dividend is expected to grow at a constant growth rate then, the expected growth rate of Dorpac's share price is 6.1%