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:

Pizzas

A popular dish made from dough covered with tomato sauce, cheese, and various toppings, often baked in an oven.

Budget Constraint

The limit on the consumption bundles that a consumer can afford to purchase with a limited amount of income.

Submarine Sandwiches

A type of sandwich consisting of a long roll of bread filled with meats, cheese, vegetables, and condiments, also known as a sub, hoagie, hero, or grinder.

Pizzas

A popular dish of Italian origin consisting of a flat round base of dough baked with a topping of tomato sauce and cheese, typically with added meat, fish, or vegetables.