Iota Industries Is an All-Equity Firm with 55 Million Shares

question 54

Multiple Choice

Iota Industries is an all-equity firm with 55 million shares outstanding. Iota has $220 million in cash and expects future free cash flows of $70 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 10%. Iota's cost of capital is 8% and assume that capital markets are perfect. The value of Iota, if they use the $220 million to expand, is closest to ________.

• A) $1155.00 million
• B) $1925.00 million
• C) $962.50 million
• D) $770.00 million

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Definitions:

Earnings and Profits

A measure of a corporation’s ability to pay dividends to shareholders, not necessarily equal to net income.

Dependent Care Assistance Plans

Benefit plans offered by employers that allow employees to use pre-tax dollars to pay for dependent care expenses.

Married Filing Separately

A filing option for married partners that enables them to report their personal income, deductions, and exemptions separately on individual tax returns.

Modified AGI

Adjusted Gross Income with certain deductions and exclusions added back in, used to determine eligibility for certain tax benefits.