Use the Information for the Question(s) Below

question 13

Multiple Choice

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.
-The value of Iota if they do not to use the $200 million to expand and hold the cash instead is closest to:

• A) $840 million
• B) $825 million
• C) $950 million
• D) $688 million

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Definitions:

Book Balance

The amount of money shown in a company's financial records, excluding any pending transactions.

Bank Cash

The amount of cash that a bank has in its vaults and with the central bank; also a term used to describe readily available funds.

Float

The total number of shares publicly available for trading in the stock market, excluding those held by insiders, the company, or other restricted entities.

Miller-Orr Model

A mathematical model used in finance to manage cash flow and determine the optimal level of cash balances for a firm.