Carbondale Oil Announces That a Well That It Has Sunk

question 12

Multiple Choice

Carbondale Oil announces that a well that it has sunk in a new oil province has shown the existence of substantial oil reserves. The exploitation of these reserves is expected to increase Carbondale'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 Carbondale's stock price upon the announcement, given that Carbondale has 80 million shares outstanding, no debt, and an equity cost of capital of 11%?

• A) no effect
• B) rise by $5.15
• C) rise by $6.43
• D) rise by $7.72

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Definitions:

Autobiographical Memory

A type of memory system consisting of episodes recollected from an individual's life, based on a combination of episodic (personal experiences and specific objects, people, and events experienced at particular time and place) and semantic (general knowledge and facts about the world) memory.

Adults

Individuals who have reached the age of maturity, typically characterized by fully developed physical growth and mental capabilities.

Recall

The mental process of retrieving information from the past, often without the aid of explicit cues.

Events

Occurrences or happenings that are significant in some way to the environment or individuals.