Universal Laser, Inc., just paid a dividend of $3.30 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year, indefinitely. Investors require a return of 15 percent on the stock for the first three years, a rate of return of 13 percent for the next three years, and then a return of 11 percent thereafter.

What is the current share price for the stock?

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87 To calculate the current share price of the stock, we can use the dividend discount model (DDM) which takes into consideration the future dividends and the required rate of return.

The DDM formula is as follows:

P0 = D1 / (r - g)

Where:
P0 = Current share price of the stock
D1 = Expected dividend for the next period
r = Required rate of return
g = Growth rate of dividends

First, let's calculate the expected dividend for the next period (D1). We know that the dividend just paid was $3.30, and the growth rate in dividends is expected to be a constant 6 percent per year. Therefore, we can calculate D1 as follows:

D1 = D0 * (1 + g)
= $3.30 * (1 + 0.06)
= $3.30 * 1.06
= $3.498

Next, let's calculate the current share price (P0) using the DDM formula. We will need to consider the required rate of return (r) for different time periods.

For the first three years, the required rate of return is 15 percent.
For the next three years, the required rate of return is 13 percent.
Afterward, the required rate of return is 11 percent.

We will use these rates in the DDM formula to calculate the share price.

P0 = D1 / (r - g)
= $3.498 / (0.15 - 0.06)
= $3.498 / 0.09
≈ $38.87

Therefore, the current share price for the stock is approximately $38.87.