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 $180 million at the end of this year and by $60 million at the end of next year.

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.