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 $$180$ million at the end of this year and by $$62$ million at the end of next year.

a$.$ If Roybus has $37$ million shares outstanding and a weighted average cost of capital of $12\mathrm{.}5\%,$ 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.$)$

The change in price per share would be $$,($Round to the nearest cent.$)$

b$.$ Would you expect to be able to sell Roybus's stock on hearing this announcement and make a profit? Explain. $($Select the best choice below.$)$

A$.$ I should be able to profit by short selling the stock immediately and buying it once the market price has dropped.

B$.$ No trading profit is possible because your broker might not handle transactions on short notice.

C$.$ If this event is public information, no trading profit should be possible because in an efficient market the stock price will immediately drop to reflect this news.

D$.$ Because the stock price is likely to drop on this news, I should be able to profit by buying the stock and selling it two years later, after the firm is fully recovered.