Summit Systems has an equity cost of capital of 10.0 %, will pay a dividend of $1.00 in oneyear, 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 thisinformation?

b. If you tried to sell your Summit Systems stock after reading thisnews, what price would you be likely toget? Why?