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

---

Definitions:

Intensive Distribution

A marketing strategy that aims to distribute a product as widely and comprehensively as possible across various outlets.

Selective Distribution

A strategy where a product is distributed through a limited number of channels or retailers to maintain exclusivity or control over the brand.

Geographical Area

A specific location, region, or territory defined by natural or artificial boundaries within which a set of activities or operations is conducted.

Density of Distribution

The measure of how extensively a product is made available to customers through the distribution channels.