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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Definitions:

Contingency Management

A therapeutic intervention that uses reward and punishment to encourage desirable behaviors and discourage unwanted ones.

Aversion Therapy

A form of behavior therapy that involves reducing or eliminating undesirable behaviors by associating them with discomfort or an unpleasant stimulus.

Complete Abstinence

is the practice of refraining from the use of alcohol or drugs entirely, often as a strategy in the treatment of substance use disorders.

Moderated Drinking

An approach to managing alcohol consumption that aims to establish a controlled pattern of drinking, often used by individuals seeking to reduce their alcohol intake rather than abstain completely.