Use the Information for the Question(s)below

question 63

Essay

Use the information for the question(s)below.
Iota Industries is an all-equity firm with 50 million shares outstanding.Iota has $200 million in cash and expects future free cash flows of $75 million per year.Management plans to use the cash to expand the firm's operations,which in turn will increase future free cash flows by 12%.Iota's cost of capital is 10% and assume that capital markets are perfect.
-A member of Iota's board of directors suggests that Iota's stock price would be higher if they used the $200 million to repurchase shares instead of funding the expansion.If you were advising the board,what course of action would you recommend,expansion or repurchase? Which provides the higher stock price?

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Definitions:

Broca's Area

A region in the frontal lobe of the brain that is involved in language processing, speech production, and comprehension.

Wernicke's Area

A region of the brain that is important for language comprehension, located in the posterior section of the superior temporal gyrus in the dominant cerebral hemisphere.

Sodium-Potassium Pump

A cell membrane protein that uses ATP to transport sodium ions out of and potassium ions into a cell, maintaining the cell's electrochemical gradient.

Resting Potential

Membrane potential of an inactive neuron.