Use the Information for the Question(s)below

question 31

Multiple Choice

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.
-The NPV of Iota's expansion project is closest to:

• A)-$110 million.
• B)-$137.5 million.
• C)$0.
• D)$75 million.

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Definitions:

Direct Materials Price Variance

The cost associated with the difference between the actual price and the standard price of direct materials multiplied by the actual quantity of direct materials used in producing a commodity.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and constitute a significant portion of the production cost.

Direct Materials

Raw materials that can be directly traced back to the production of specific goods or services.

Standard Costs

Predetermined costs of manufacturing a single unit or a number of units during a specific period under normal conditions.