Aerelon Airways, a commercial airline, suffers a major crash. As a result, passengers are considered to be less likely to choose Aerelon as their carrier, and it is expected free cash flows will fall by $20 million per year for five years. If Aerelon has 65 million shares outstanding, an equity cost of capital of 12%, and no debt, by how much would Aerelon's shares be expected to fall in price as a result of this accident?

Question

Quizplus · Accepted Answer

The Answer of Aerelon Airways, a commercial airline, suffers a major crash. As a result, passengers are considered to be less likely to choose Aerelon as their carrier, and it is expected free cash flows will fall by $20 million per year for five years. If Aerelon has 65 million shares outstanding, an equity cost of capital of 12%, and no debt, by how much would Aerelon's shares be expected to fall in price as a result of this accident?

Aerelon Airways, a Commercial Airline, Suffers a Major Crash