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
a. If Roybus has 35 million shares outstanding and a weighted average cost of capital of 13%, what change in Roybus’s stock price would you expect upon this announce- ment? (Assume 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.
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