New value of a share of Summit Systems stock

1. Suppose Hawaiian Airlines (HA) has 53 million shares outstanding. Estimate Hawaiian’s share value using each of the five valuation multiples in Problem 42, based on the median valuation multiple of the other seven airlines shown.

2. Summit Systems (see Problem 13) has an equity cost of capital of 11% and will pay a dividend of $1.50 in one year, and its dividends had been expected to grow by 6% 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% per year forever.

a. What is the new 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?


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