Rexton Oil is an all-equity firm with 100 million shares outstanding. Rexton has $150 million in cash

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Rexton Oil is an all-equity firm with 100 million shares outstanding. Rexton has $150 million in cash and expects future free cash flows of $65 million per year. Management plans to use the cash to expand the firm’s operations, which will in turn increase future free cash flows to $72.8 million per year. If the cost of capital of Rexton’s investments is 10%, how would a decision to use the cash for a share repurchase rather than the expansion change the share price?

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Fundamentals Of Corporate Finance

ISBN: 9781292437156

5th Global Edition

Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford

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