You read in the paper that Summit Systems will pay a dividend of $$$$2\mathrm{.}00$ this year. At that point you expected$$ Summit's dividend to grow by $5\mathrm{.}5\%$ 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 $4\mathrm{.}0\%$ per year forever. The$$ firm's equity cost of capital is $11\mathrm{.}5\%.$

a$.$ What is the value of a share of Summit Systems stock based on the original expected dividend growth of $5\mathrm{.}5\%$ per$$ year?

b$.$ If you tried to sell your Summit Systems stock

$2.$ Roybus, Inc., a manufacturer of flash$$ memory, just reported that its main production facility in Taiwan was destroyed in a fire. While the plant was fully$$ insured, the loss of production will decrease$$ Roybus's free cash flow by $ $185$ million at the end of this year and by $ $64$ million at the end of next year.

a$.$ If Roybus has $39$ million shares outstanding and a weighted average cost of capital of $13\mathrm{.}4\%,$ what change in$$ Roybus's stock price would you expect upon this$$ announcement? $($Assume that the value of$$ Roybus' debt is not affected by the$$ event.$)$

b$.$ Would you expect to be able to sell$$ Roybus's stock on hearing this announcement and make a$$ profit? Explain.