Advanced Chemical Industries Is Awaiting the Verdict from a Court

question 7

Multiple Choice

Advanced Chemical Industries is awaiting the verdict from a court case over whether it is liable for the clean-up of wastes on a disused factory site.If it is liable,this will result in a reduction of its free cash flow by $12 million per year for ten years.If it is not liable,there will be no effect.On the close of trading the day before the announcement of the verdict,Advanced Chemicals was trading at $20 per share.Most investors calculate that there is a 100% chance that Advanced Chemicals will have a verdict returned against them.One investor,Jo,has performed extensive research into the outcome of the trial and estimates that there is no chance Advanced Chemicals will have a verdict returned against them.Given that Advanced Chemicals has 60 million shares outstanding and an equity cost of capital of 8% with no debt,Jo's estimate of the value of a share of Advanced Chemicals would be how much more than the market price?

• A)$1.34
• B)$20.46
• C)$20.68
• D)$20.96

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Definitions:

Ethical Guidelines

Principles designed to govern behavior and conduct, especially in research or professional settings, to ensure fairness, integrity, and respect for all participants.

Psychological Research

The scientific study of the mind and behavior through experiments, observation, and analysis to understand mental functions, behaviors, and processes.

Scientific Misconduct

Involves fraudulent activities within the scientific research space, such as data fabrication, falsification, and plagiarism.

Fabricating Data

The unethical act of artificially creating or altering data in scientific research to fit desired outcomes.