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. While the plant was fully insured, the loss of production will decrease Roybus's free cash flow by $183 million at the end of this year and by $63 million at the end of next year.
a. If Roybus has 37 million shares outstanding and a weighted average cost of capital of 13.5%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus' debt is not affected by the event.)
b. Would you expect to be able to sell Roybus's stock on hearing this announcement and make a profit? Explain.
Having trouble working the problem I know its going to look something like this: 183/(1+0.135)-63(1+0.135)^2 For question A, with a negative number? please provide steps.
Homework Answers
a.
change in value = -FCF1/(1+WACC)-FCF2/(1+WACC)^2
=-183/(1+0.135)-63/(1+0.135)^2
=-210.1379
price drop = change in value/shares outstanding=(-210.1379)/37=-5.68
b.
No, markets are extremely efficient, and unless you are a full time trader it will be difficult to react quickly and capitalize on the news
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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...
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 $ 63 million at the end of next year. a. If Roybus has 32 million shares outstanding and a weighted average cost of capital of 13.5 %, what change in Roybus's...
Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed i...
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 $175 million at the end of this year and by $58 million at the end of next year. a. If Roybus has 31 million shares outstanding and a weighted average cost of capital of 13.5%, what change in Roybus's stock price would...
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Please answer A and B, thank you!
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 $184 million at the end of this year and by $55 million at the end of next year. a. If Roybus has 30 million shares outstanding and a weighted average cost of capital of 13.6%,...
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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 $175 million at the end of this year and by $58 million at the end of next year. a. If Roybus has 31 million shares outstanding and a weighted average cost of capital of 13.5%, what change in Roybus's stock price would...
Please answer A and B, thank you!
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 $184 million at the end of this year and by $55 million at the end of next year. a. If Roybus has 30 million shares outstanding and a weighted average cost of capital of 13.6%,...
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