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:

Strategy and Goals

A comprehensive plan devised to achieve specific objectives over a predetermined timeline, aligning actions with overarching ambitions.

Connection

Connection pertains to the relationship or link between individuals, groups, or systems that allows for communication, interaction, or functional integration.

Company's Website

An online platform owned and operated by a business, designed to provide information about the company, its products, and services.

Commerce Element

Fundamental aspects or components involved in the buying and selling of goods and services.