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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
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 free cash flow by $182 million at the end of this year and by $55 million at the end of next year. a. If Roybus has 37 million shares outstanding and a weighted average cost of capital of 12.7%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.) b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain. a. If Roybus has 37 million shares outstanding and a weighted average cost of capital of 12.7%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.) The change in price per share would be $. (Round to the nearest cent.)
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