Apex Analytics Is an All-Equity Firm with 50 Million Shares

question 75

Multiple Choice

Apex Analytics is an all-equity firm with 50 million shares outstanding.Apex has $30 million in cash,and expects future free cash flows of $8 million per year.The cash can be used to expand the firm's future operations,increasing future free cash flows to $10 million per year.If Apex's cost of capital for the expansion is 8%,what will be the difference in the firm's share price compared to using the cash for a share repurchase?

• A)Share price is $0.10 higher with expansion.
• B)Share price is $0.10 higher with repurchase.
• C)Share price is the same with both options.
• D)Share price is $0.50 higher with expansion.
• E)Share price is $0.50 higher with repurchase.

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Definitions:

Positively Correlated

A relationship between two variables where they move in the same direction, meaning that as one variable increases, the other variable also increases, and vice versa.

Complete Information

A scenario in which all parties have access to all relevant information related to a transaction or decision.

Real Rate of Return

The real rate of return is the annual percentage profit earned on an investment, adjusted for changes in the price level due to inflation or deflation.

Nominal Return

The return on an investment without adjusting for inflation, representing the raw earnings or loss.