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:

Emotional Noise

Form of communication interference caused by emotional arousal.

Communicative Interference

Anything that disrupts the flow of communication, often leading to misunderstanding or confusion.

Profane Language

The use of offensive, vulgar, or blasphemous language that is socially taboo or culturally unacceptable.

Differing Speech Rate

Variation in the speed at which individuals speak, which can affect interpersonal communication and perception.