(Solved): Forest Lumber Company Ltd. (FLC) is a publicly traded forestry company that manufactures wood prod ...

Forest Lumber Company Ltd. (FLC) is a publicly traded forestry company that manufactures wood products and manages forests in various regions in Canada. It sells softwood throughout Canada and \( 40 \% \) of its sales are to the United States. FLC's share price currently trades at \( \$ 32.00 \) per share. It also has \( \$ 30 \) million of bonds outstanding that mature in 10 years and currently have a yield to maturity of \( 6 \% \). The company's current bond rating is \( \mathrm{BBB} \), which it has been for the past five years. On March 13 , the company released its financial statements that showed a profit higher than anticipated by the analysts. On the same day, at the directors' meeting, the CFO indicated that a union had now been officially organized at one of the company's manufacturing plants. This process had started about five months earlier and had been in the news during that time. The CFO also announced that an unsolicited offer had been received from a competitor to purchase a tract of forest FLC owns in Quebec. The offer price was very reasonable, and the CFO recommended that it be seriously considered. This was not public knowledge and the offer stipulated that this not be announced until the negotiations were well underway. Required: a) Assuming a semi-strong efficient market, how would the share price react on March 13 and why? Would there be any change in the yield of the bonds? b) It is now one year later, and the United States has announced a \( 25 \% \) tariff on softwood lumber imports. FLC has just announced that it will issue \( \$ 10 \) million in new bonds. Discuss the implications for FLC's share price and bond yield after these announcements (assume the yield on the bonds was \( 6 \% \) before the tariff