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:

Reciprocity

The practice of exchanging things with others for mutual benefit, especially privileges granted by one country or organization to another.

Work Performance

The effectiveness and efficiency with which an individual or group accomplishes their assigned tasks and goals.

Climate

The average weather conditions in a place over a long period, typically used to describe a geographic region's general weather patterns.

Pollution

The contamination of natural environments by harmful substances, resulting from human activities, which negatively affects air, water, soil quality, and consequently, living organisms.