Question
Roybus, Inc., a manufacturer of flashmemory, just reported that its main production facility in Taiwan was destroyed in a fire. While the plant was fullyinsured,
Roybus, Inc., a manufacturer of flashmemory, just reported that its main production facility in Taiwan was destroyed in a fire. While the plant was fullyinsured, the loss of production will decreaseRoybus's free cash flow by $ 177 million at the end of this year and by $ 57 million at the end of next year.
a. If Roybus has 32 million shares outstanding and a weighted average cost of capital of 12.2 %, what change inRoybus's stock price would you expect upon thisannouncement? (Assume that the value ofRoybus' debt is not affected by theevent.)
b. Would you expect to be able to sellRoybus's stock on hearing this announcement and make aprofit? Explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started