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 $181 million at the end of this year and by $57 million at the end of next year. a. If Roybus has 33 million shares outstanding and a weighted average cost of capital of 12.9%, 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

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 $181 million at the end of this year and by $57 million at the end of next year. a. If Roybus has 33 million shares outstanding and a weighted average cost of capital of 12.9%, 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

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 28CE: LO.2 Gaffney Corporation is a wholesale distributor of auto parts and uses the cash method of...

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LO.2 Gaffney Corporation is a wholesale distributor of auto parts and uses the cash method of accounting. The companys sales have been about 20 million per year for the last few years. However, Gaffney has the opportunity to acquire an unincorporated competitor with annual sales of 10 million. What would be the accounting implications of acquiring the competitor?
Question 3 Pantus, Inc., a manufacturer of cleaning products, just reported that its main production facility in Hong Kong was destroyed in a fire. While the plant was fully insured, the loss of production will decrease Pantus’ free cash flow by $50 million for the next three years. a) If Pantus has 45 million shares outstanding, weighted average cost of capital of 10% and equity cost of capital of 12%, what change in Pantus’ stock price would you expect upon this announcement? (Assume the value of Pantus’ debt -valued at $75 million- is not affected by the event.)
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