Malibu Mannequins Is an All-Equity Firm with 40 Million Shares

question 76

Multiple Choice

Malibu Mannequins is an all-equity firm with 40 million shares outstanding.Malibu has $20 million in cash,and expects future free cash flows of $5 million per year.The cash can be used to expand the firm's future operations,increasing future free cash flows to $8 million per year.If Malibu's cost of capital for the expansion is 5%,what will be the difference in the firm's share price compared to using the cash for a share repurchase?

• A)Share price is $1.00 higher with expansion.
• B)Share price is $1.00 higher with repurchase.
• C)Share price is the same with both options.
• D)Share price is $1.50 higher with expansion.
• E)Share price is $1.50 higher with repurchase.

---

Definitions:

Black Activists

Individuals of African descent who actively campaign for civil and human rights, challenging systemic racism and advocating for social justice.

Deportation AND Colonization

The forced removal of a population from one area to another, often to a colony, as part of a policy of territorial expansion or population control.

Reformers

Individuals or groups advocating for changes in social, political, or economic institutions to improve public welfare.

Legitimize

To make something legal, acceptable, or official, often through processes that grant it legitimacy or validity in the eyes of the law or public opinion.