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Summit Systems has an equity cost of capital of 11.0%​, will pay a dividend of ​$2.25...

Summit Systems has an equity cost of capital of 11.0%​, will pay a dividend of ​$2.25 in one​ year, and its dividends had been expected to grow by 7.0% per year. You read in the paper that Summit Systems has revised its growth prospects and now expects its dividends to grow at a rate of 2.5% per year forever.

a. What is the drop in value of a share of Summit Systems stock based on this​ information?

b. If you tried to sell your Summit Systems stock after reading this​ news, what price would you be likely to​ get? Why?

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jeff jeffy answered 2 years ago
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