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28 July, 17:57

Carbondale Oil announces that a 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

Carbondaleʹs free cash flow by $100 million per year for eight years. If investors had not been

expecting this news, what is the most likely effect on Carbondaleʹs stock price upon the

announcement, given that Carbondale has 80 million shares outstanding, no debt, and an equity

cost of capital of 11%?

A) no effect

B) rise by $5.15

C) rise by $6.43

D) rise by $7.72

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Answers (1)
  1. 28 July, 18:19
    0
    C) rise by $6.43

    Explanation:

    This due to the fact that investors had not expected the news and it is favorable to them.
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