Announcement and make a? profit

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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 fully? insured, the loss of production will decrease? Roybus's free cash flow by $ 177 million at the end of this year and by $ 62 million at the end of next year.

a. If Roybus has 39 million shares outstanding and a weighted average cost of capital of 13.3 %?, 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.

Reference no: EM132546069

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