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

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