Question

Summit Systems has an equity cost of capital of 12.0%,will pay a dividend of $1.00in one year, and its dividends had been expected to grow by6.5% 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?

Answer #1

Summit Systems has an equity cost of capital of 11.0 %, will
pay a dividend of $1.75 in one year, and its dividends had been
expected to grow by 5.5 % 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 3.5 % per year forever. a. What is
the drop in value of a share of Summit Systems stock based on this
information?...

Summit Systems has an equity cost of capital of
11.5 %,
will pay a dividend of
$1.501.50
in one year, and its dividends had been expected to grow by
6.5 %
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
3.0 %
per year forever.
a. What is the drop in value of a share of Summit Systems stock
based on this information?...

Summit Systems has an equity cost of capital of 10.0%, will pay
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dividends to grow at a rate of 3.0% per year forever.
a. What is the drop in value of a share of Summit Systems stock
based on this information?
b. If you...

Summit Systems has an equity cost of capital of 11.5 %?, will
pay a dividend of ?$1.75 in one? year, and its dividends had been
expected to grow by 6.5 % 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 3.5 % per year forever. a. What is
the drop in value of a share of Summit Systems stock based on this?
information?...

Summit Systems has an equity cost of capital of
11.5 %11.5%,
will pay a dividend of
$1.501.50
in one year, and its dividends had been expected to grow by
6.5 %6.5%
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
3.0 %3.0%
per year forever.
a. What is the drop in value of a share of Summit Systems stock
based on this information?...

Summit Systems will pay a dividend of $1.43 this year. If you
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