Use the Information for the Question(s)below

question 62

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.
-Suppose that Iota is able to invest the $200 million in excess cash into a project that will increase future free cash flows by 30%.If you were advising the board,what course of action would you recommend,investing the $200 million in an expansion project that will raise future free cash flows by 30% or use the $200 million to repurchase shares? Which provides the higher stock price?

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Definitions:

Traditions

Customs or beliefs handed down from generation to generation, often forming a part of a community's culture.

Broader Culture

Refers to the wider set of shared attitudes, values, goals, and practices that characterizes an institution, organization, or group larger than a single community.

New Cultural Studies

A field of study focused on understanding contemporary cultures through various lenses, including media, technology, and identity.

Ephemeral

Something transitory or short-lived, lasting for a very short period of time.