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

---

Definitions:

Current Price

The present market value or selling price of a good, service, or asset.

Product

An item or service created as a result of a process, intended for the market.

Absorption Costing

A financial tracking approach that incorporates all costs associated with producing an item, such as direct materials, direct labor, along with all manufacturing overhead costs, whether they are fixed or variable.

Markup Percentage

The percentage added to the cost of goods to achieve a selling price, representing profit margin.