Apex Analytics Is an All-Equity Firm with 50 Million Shares

question 75

Multiple Choice

Apex Analytics is an all-equity firm with 50 million shares outstanding.Apex has $30 million in cash,and expects future free cash flows of $8 million per year.The cash can be used to expand the firm's future operations,increasing future free cash flows to $10 million per year.If Apex's cost of capital for the expansion is 8%,what will be the difference in the firm's share price compared to using the cash for a share repurchase?

• A)Share price is $0.10 higher with expansion.
• B)Share price is $0.10 higher with repurchase.
• C)Share price is the same with both options.
• D)Share price is $0.50 higher with expansion.
• E)Share price is $0.50 higher with repurchase.

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Definitions:

Income

The total amount of money received by an individual or group over a certain period, often derived from work, investments, or business ventures.

Probability

Probability is a measure of the likelihood of an event to occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

Certain Income

A guaranteed or fixed amount of money received, not subject to variations or uncertainties.

Expected Utility

A concept in economics that represents the total utility an individual anticipates or expects to receive from a set of outcompeting choices under conditions of uncertainty.