Gooringa Oil Announces That an Exploratory Well That It Has

question 32

Multiple Choice

Gooringa Oil announces that an exploratory well that it has sunk in a new area has shown the existence of substantial oil reserves. The exploitation of these reserves is expected to increase Gooringa'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 Gooringa's share price upon the announcement, given that Gooringa has 80 million shares outstanding, no debt, and an equity cost of capital of 10%?

• A) rise by $5.78
• B) rise by $6.67
• C) no effect
• D) rise by $8.30

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Definitions:

Housing Prices

The monetary value assigned to residential dwellings based on market conditions, location, and attributes of the property.

Natural Experiment

An observational study in which an event or a policy affects the variables of interest, allowing researchers to study outcomes without manipulating the study environment.

Lower Gas Prices

A decrease in the cost of gasoline, which can affect consumer spending, travel behavior, and the overall economy.

Lab Experiments

Controlled experiments carried out in a laboratory setting to investigate relationships between variables.