Use the Information for the Question(s)below

question 62

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.
-Suppose that Iota is able to invest the $200 million in excess cash into a project that will increase future free cash flows by 30%.If you were advising the board,what course of action would you recommend,investing the $200 million in an expansion project that will raise future free cash flows by 30% or use the $200 million to repurchase shares? Which provides the higher stock price?

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Definitions:

Maslow's Hierarchy

A theory in psychology proposed by Abraham Maslow, which posits that human needs range in a hierarchy from basic physical needs to self-actualization and transcendence.

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The mental requirements for learning, understanding, and awareness, essential for problem solving, decision making, and intellectual growth.

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The practice of having patients begin walking and moving around shortly after surgery or during illness to promote quicker recovery.

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The practice of cleaning the genitals and anal area to prevent infection and maintain hygiene, often part of patient care in healthcare settings.