Question

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

?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 $ 179 million at the end of this year and by $ 64 million at the end of next year. a. If Roybus has 33 million shares outstanding and a weighted average cost of capital of 13.1 %?, 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.

Homework Answers

Answer #1

a) Present value of decrease in free cash flows = [ $179 / (1 + 0.131)1 ] + [ $64 / (1 + 0.131)2 ] = $208.299815 million

So, the total value of equity (in case debt is not affected) will drop by $208.299815 million.

Change in share price = (-)$208.299815 million / 33 million = (-)$6.31 per share

Therefore, the stock will drop by $6.31 per share.

b) In case the markets are efficient, the above change will be incorporated immediately in the stock price and therefore, you will not be able to make any profit.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
​Roybus, Inc., a manufacturer of flash​ memory, just reported that its main production facility in Taiwan...
​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 $185 million at the end of this year and by $ 59 million at the end of next year. a. If Roybus has 35 million shares outstanding and a weighted average cost of capital of 13.6%​, what change in​ Roybus's stock price...
Blue​ Diamond, Inc., a manufacturer of glass screens just paid an annual dividend of $8.93 Analysts...
Blue​ Diamond, Inc., a manufacturer of glass screens just paid an annual dividend of $8.93 Analysts are predicting a​ 5% per year growth rate in dividends forever. If Blue Diamond just announced that it unexpectedly lost an intellectural property lawsuit and was required to pay a penalty. The penalty is $182 million to be paid at the end of this year and $58 million to be paid at the end of next year. a. If Blue​ Diamond's equity cost of...
PRODUCTION PLANNING AT VIKTOR LENAC SHIPYARD Professor Giorgio Sinković and Professor David M. Currie prepared this...
PRODUCTION PLANNING AT VIKTOR LENAC SHIPYARD Professor Giorgio Sinković and Professor David M. Currie prepared this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction...
This case assignment draws from the Business Information Systems and the Systems Acquisition and Development modules...
This case assignment draws from the Business Information Systems and the Systems Acquisition and Development modules (Chapters 5 to 8). Its purpose is to provide you with experience in analyzing organizational information systems, making recommendations to improve these systems, and formulating a plan to execute on your recommendations. 1. Recommend one of your alternatives that is the best solution to the main issue and justify your recommendation. Your justification should be based on the key decision criteria and you must...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary rivals? How will the acquisition of Reebok by Adidas impact the structure of the athletic shoe industry? Is this likely to be favorable or unfavorable for New Balance? 2- What issues does New Balance management need to address? 3-What recommendations would you make to New Balance Management? What does New Balance need to do to continue to be successful? Should management continue to invest...
Discuss how the respective organizations’ relations with stakeholders could have potentially been affected by the events...
Discuss how the respective organizations’ relations with stakeholders could have potentially been affected by the events that took place at Enron and how the situation could have been dealt with differently to prevent further damage? THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies,...
Mattel Responds to Ethical Challenges Business Ethics This case was written by Debbie Thorne, John Fraedrich,...
Mattel Responds to Ethical Challenges Business Ethics This case was written by Debbie Thorne, John Fraedrich, O. C. Ferrell, and Jennifer Jackson, with the editorial assistance of Jennifer Sawayda. This case was developed for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative, ethical, or legal discussion by management. All sources used for this case were obtained through publicly available material. Mattel, Inc. is a world leader in the design, manufacture, and marketing of family...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how the firms resources incompetencies support the given pressures regarding costs and local responsiveness. Describe entry modes have they usually used, and whether they are appropriate for the given strategy. Any key issues in their global strategy? casestudy: Atlanta, June 17, 2014. Sea of Delta employees and their families swarmed between food trucks, amusement park booths, and entertainment venues that were scattered throughout what would...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT