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Brutus Buckeye Co announces the existence of substantial new oil reserves. The exploitation of these reserves is expected to increase the company'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 the company's stock price upon the announcement, given that the company has 80 million shares outstanding, no debt, and an equity cost of capital of 11%

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abiolataiwo2015

The most likely effect on the company's stock price upon the announcement is $6.43.

Likely effect on the company's stock price

First step is to find the present value of 100 million for 8 years at 11% using PV table.

PV of  100 million for 8 years at 11%:

PV= $514.6123 million per share

Second step is to calculate the Effect on stock price

Effect on stock price= $514.6123 million / 80 million

Effect on stock price = $6.43

Inconclusion the most likely effect on the company's stock price upon the announcement is $6.43.

Learn more about  company's stock price here:https://brainly.com/question/25300299

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