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Carbondale Oil announces that a wildcat well that it has sunk in a new oil province has shown the ...

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Carbondale Oil announces that a wildcat well that it has sunk in a new oil province has shown the ...

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 $100 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 10%?

▸ rise by $8.30

▸ rise by $6.67

▸ no effect

▸ rise by $5.78

Textbook

Fundamentals of Corporate Finance

Edition: 2^nd

Authors: Berk, DeMarzo, Harford

Read 178 times

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