You read in the paper that Summit Systems will pay a dividend of $1.50 this year. At that point you expected Summit's dividend to grow by 7.0% per year. Today you read in the paper that Summit Systems has revised its growth prospects and expects its dividends to grow at a rate of 2.5% per year forever. If the firm's equity cost of capital is 10.5%:
a. What is the value of a share of Summit Systems stock based on the original expected dividend growth of 7.0% per year?
b. If you tried to sell your Summit Systems stock after reading this news, what price would you be likely to get? Why?
a. What is the value of a share of Summit Systems stock based on the original expected dividend growth of 7.0% per year? The value of a share is $ . (Round to the nearest cent.)