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Homework answers / question archive / Agua Caliente Corp
Agua Caliente Corp. (ACC) is a publicly-traded corporation that operates as a water provider in a perfectly competitive market for bottled water. Then the civic leaders of Burning Springs grant ACC an exclusive contract to supply winter to its town, effectively granting ACC a monopoly. Demand for water among residents of Burning Springs is notably inelastic, and the terms of the contract specifically stipulate that ACC will not be regulated in its provinion of water. If the equity markets perfectly reflect changes in the value of the firm as measured by economic profits, how do you expect announcement of the contract and its terra to affect the price of ACC stock? There will be no effect. The stock price will decrease because future profits are expected to he higher The stock price will increase because future profits are expected to be higher The stock price will increase because future profits are expected to be lower. Not enough information is provided to answer this question,
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