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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:

Sex

The biological disparities between male and female organisms, often involving reproductive functions; can also refer to activities related to sexual intercourse.

Patriarchal

Relating to a social system where men hold primary power and predominate in roles of political leadership, moral authority, social privilege, and control of property.

Matriarchal

A social system in which women hold primary power, typically in roles of political leadership, moral authority, social privilege, and control of property.

Monarchical

Pertaining to a monarchy, a form of government in which a single figure, the monarch, acts as the head of state within the parameters of a constitution or laws.