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18 October, 00:41

Dorpac Corporation has a dividend yield of 1.5%. Its equity cost of capital is 8%, 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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  1. 18 October, 00:46
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    The expected growth rate of Dorpac's dividends is 6.5% The expected growth rate of Dorpac's share price 6.5%

    Explanation:

    a> the expected growth rate of Dorpac's dividends = Div Yld + g = Ce, so g = 8% - 1.5% = g = 6.5%.

    b> With constant dividend growth, the expected growth rate of Dorpac's share price is also expected to grow at rate g = 6.5%.
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