Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was

Question:

Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed in a fire. Although the plant was fully insured, the loss of production will decrease Roybus’s by $180 million at the end of this year and by $60 million at the end of next year.
a. If Roybus has 35 million shares outstanding and a weighted average of 13%, what change in Roybus’s stock price would you expect upon this announcement? (Assume the value of Roybus’s 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.

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