Appropriate market rate for investments


Laserclok Corporation paid a dividend for 50 years until it experienced financial difficulty three years ago, at which time the dividend payment was suspended (that is, a dividend has not been paid during the past three years). The company is now much stronger financially, but Laserclok does not expect to pay a dividend for the next five years. Beginning six years from today, the company will pay a dividend equal to $2.10, which is 5 percent greater than the last dividend paid three years ago. After the dividend payments start again, Laserclok expects the dividend to continue to be paid and to grow at a constant rate of 5 percent. If the appropriate market rate for investments similar to Laserclok's stock is 15 percent, at what price should the stock currently be selling in the financial markets?

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Finance Basics: Appropriate market rate for investments
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