Effect on carbondale stock price upon announcement

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Reference no: EM132018186

1. Carbondale Oil announces that a wildcat well that it has sunk in a new oil province has shown the existence of substantial oil reserves. The exploitation of these reserves is expected to increase Carbondale's free cash flow by $90 million per year for eight years. If investors had not been expecting this news, what is the most likely effect on Carbondale's stock price upon the announcement, given that Carbondale has 80 million shares outstanding, no debt, and an equity cost of capital of 8% ?

A. rise by $7.76

B. rise by $6.46

C. rise by $5.17

D. no effect

2. On a particular date, FedEx has a stock price of $88.05 and an EPS of $7.70. Its competitor, UPS, had an EPS of $0.40. What would be the expected price of UPS stock on this date, if estimated using the method of comparables?

A. $6.86

B. $4.57

C. $9.15

D. $10.00

Reference no: EM132018186

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