Use the Information for the Question(s)below

question 64

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 use the $200 million to expand,is closest to:

• A)$825 million
• B)$688 million
• C)$840 million
• D)$950 million
• E)$630 million

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Definitions:

Price Elasticity

A measure that shows how much the quantity demanded of a good responds to a change in the price of that good.

Tax Borne

Refers to the entity (consumers, producers, or others) that ultimately pays the economic cost of a tax, regardless of who the tax is initially levied upon.

Subsidy Program

A government initiative designed to support businesses or individuals through financial assistance or tax benefits.

Downward Sloping

Describes a line or curve on a graph that shows a decrease in one variable as another variable increases, often used in economics to describe demand curves.