Computation of value of the stock and which the market had, Ask an Expert

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Computation of value of the stock

Apple Computer, Inc. announced the new iPod Touch after the market close on September 12, which the market had no knowledge of prior to the announcement. Apple stock was closed at $195.50 per share at the close on the 12th. The sales of the new iPod Touch will increase the company's net cash flow by $1.6 per share per year (or $0.40 per quarter) for the next 2 years, and zero after that. Apple stock has a beta of 1.5. Assume the current market risk premium is 8% (on a quarterly basis) and the risk-free rate is 4% (also on a quarterly basis). What would be Apple's price at 9:30 on the 13th when the market opened, if this was an efficient market?

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