Prada Has Nine Million Shares Outstanding, Generates Free Cash Flows

question 5

Multiple Choice

Prada has nine million shares outstanding, generates free cash flows of $ 40 million each year and has a cost of capital of 10%. It also has $30 million of cash on hand. Prada wants to decide whether to repurchase stock or invest the cash in a project that generates free cash flows of $5 million each year. Should Prada invest or repurchase the shares?

• A) indifferent between options
• B) repurchase
• C) invest
• D) cannot say for sure

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Definitions:

DDT Spill

An accidental release of the pesticide DDT (Dichloro-Diphenyl-Trichloroethane) into the environment, causing ecological and health concerns.

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A sequence of organisms, each of which serves as a food source for the next, in an aquatic ecosystem, showcasing the flow of energy and nutrients.

Phytoplankton

Microscopic plant-like organisms that live in aquatic environments and are a fundamental part of the oceanic and freshwater food chains.

Aerial Spraying

The application of pesticides or herbicides from aircraft to control pests and diseases in agriculture or public health campaigns.