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The cellar master at a large public winery accidentally added arsenic

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Question 1;The cellar master at a large public winery accidentally added arsenic instead of argon to a batch of merlot and accidentally killed some of their customers.;Between the lawsuits and reduced sales, its future expected free cash flow will decline by $20 million in the first year and then $10 million per year for the next 5 years after that.;Assume the firm has 10 million shares outstanding, no debt, and an equity cost of capital of 8%.;If this news came as a complete surprise to investors (semi-strong form efficiency), how much will the winery's stock price drop upon the announcement of this event?;Question 2;(True or False);Private information, held only by insiders, is never reflected in a firm's stock price until it is announced publicly.;Attachment Preview;Screen Shot 2014-11-28 at 10.58.02 PM.png;Additional Requirements;Level of Detail: Show all work

 

Paper#21811 | Written in 18-Jul-2015

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