Prada Has Ten Million Shares Outstanding, Generates Free Cash Flows

question 80

Multiple Choice

Prada has ten million shares outstanding, generates free cash flows of $ 60 million each year and has a cost of capital of 10%. It also has $40 million of cash on hand. Prada wants to decide whether to repurchase stock or invest the cash in a project that generates free cash flows of $2 million each year. Should Prada invest or repurchase the shares?

• A) indifferent between options
• B) repurchase
• C) invest
• D) cannot say for sure

---

Definitions:

Measured Variables

Variables in a study that are quantified or labeled based on empirical observation or experiment.

Independent Variable

The factor in a study that is deliberately changed by the investigator to see how it influences the outcome variable.

Statistically Significant Interaction

An interaction between variables that leads to a difference in outcomes which is unlikely to be due to chance alone, according to statistical analysis.

Means

Statistical averages that are calculated by adding up all the numbers in a set and then dividing by the count of those numbers.