Use the Information for the Question(s)below

question 19

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 assumes that capital markets are perfect.
-The value of Iota, if they use the $200 million to expand, is closest to:

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

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Definitions:

Inflows

Funds coming into a business from operations, investments, or financing activities.

Borrower in Default

A situation where a borrower fails to meet the legal obligations of a loan, such as not making scheduled payments.

Courses of Action

Different strategies or plans that an entity can choose to undertake in response to various scenarios or problems.

Quick Ratio

The quick ratio, or acid-test ratio, measures a company's ability to pay its short-term liabilities with its most liquid assets.