Keurig Green Mountain (KGM), a specialty coffee and coffeemaker company, makes a surprise announcement today that Green Mountain coffee will be sold…

Keurig Green Mountain (KGM), a specialty coffee and coffeemaker company, makes a surprise announcement today that Green Mountain coffee will be sold in Starbucks retail stores. This will result in an additional $150 million in free cash flow for KGM, starting in one year, growing at 2% per year thereafter indefinitely. There are no other changes to the firm. KGM has 137 million shares outstanding and a WACC of 13.0%. Net debt for KGM is $700 million. Which of these is the most likely Keurig stock price reaction when they made this announcement?

a.No impact

b.Increased $2

c.Increased $7

d.Increased $10

e.Increased $14

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