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Prada Has Ten Million Shares Outstanding, Generates Free Cash Flows

question 14

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Prada has ten million shares outstanding, generates free cash flows of $ 50 million each year and has a cost of capital of 10%. It also has $50 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?


Definitions:

Wholeness

The state of forming a complete and harmonious whole; unity.

Idealization

A psychological or social process of attributing overly positive qualities to another person or thing, often ignoring the possible negative aspects.

Locsin

Refers to Rozzano Locsin, a nursing theorist known for his contributions to the understanding of technology and caring in nursing.

Objectification

The treatment of a person or group as an object, stripping them of their autonomy, agency, or individuality.

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