Use the Information for the Question(s)below

question 42

Multiple Choice

Use the information for the question(s) below.
Vezuvo Technologies has $75 million in excess cash and no debt. The firm expects to generate additional free cash flows of $50 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Vezuvo's unlevered cost of capital is 10% and there are 10 million shares outstanding. Vezuvo's board is meeting to decide whether to pay out its $75 million in excess cash as a special dividend or to use it to repurchase the firm's shares.
-A firm has $75 million of assets that includes $12 million of cash and 25 million shares outstanding. If the firm uses $12 million of cash to repurchase shares, what is the new price per share?

• A)$1
• B)$2
• C)$3
• D)$4

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Definitions:

Market Penetration

The extent to which a product or service is recognized and used by customers in a particular market.

Diversification

A strategy in finance and business development that involves entering into a variety of markets or developing a range of products to minimize risks.

Product Development

The process of creating, designing, and bringing a new product to market.

Market Development

Market development is a strategic effort to expand into new markets or segments, aiming to increase the customer base for a product or service.