Because of a Catastrophic Plane Crash,the FAA Announced That It

question 5

Multiple Choice

Because of a catastrophic plane crash,the FAA announced that it is withdrawing its air worthiness certification for Fly by Night Aviation's (FBNA) new four-seat private plane.As a result,FBNA's future expected free cash flows will decline by $40 million a year for the next eight years.FBNA has 20 million shares outstanding,no debt,and an equity cost of capital of 12%.If this news is a complete surprise to investors,then the amount that FBNA's stock price should fall upon the announcement is closest to:

• A)$2.00.
• B)$16.00.
• C)$16.70.
• D)$9.90.

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Definitions:

Budgeting

The process of creating a plan to spend your money, allocating estimated revenues towards expenses, savings, and debt repayment.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the standard cost assigned to production, measured per unit.

Planning Budget

A forecast of revenue, expenses, and profit for a specific period of time, often used as a financial roadmap.

Customers Served

The number of clients or customers that a company has provided services or goods to within a specific period.