Collingwood Costumes Is an All-Equity Firm with 80 Million Shares

question 100

Multiple Choice

Collingwood Costumes is an all-equity firm with 80 million shares outstanding.Collingwood has $75 million in cash,and expects future free cash flows of $15 million per year.The cash can be used to expand the firm's future operations,increasing future free cash flows to $16 million per year.If Collingwood's cost of capital for the expansion is 10%,what will be the difference in the firm's share price compared to using the cash for a share repurchase?

• A)Share price is $0.12 higher with expansion.
• B)Share price is $0.12 higher with repurchase.
• C)Share price is the same with both options.
• D)Share price is $0.81 higher with expansion.
• E)Share price is $0.81 higher with repurchase.

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