You read in the paper that Summit Systems will pay a dividend of

$1.00 this year. At that point you expected Summit's dividend to grow by 5.5 %

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. 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

5.5 % 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?