3. Iota Industries is an all-equity firm with 50 million shares outstanding. Iota has $200 million in cash and expects fixed future free cash flows of $75 million per year permanently. Management plans to use the cash to expand the firm's operations, which in turn will increase the level of future free cash flows by 12% (will keep that new level every year permanantly). Iota's cost of capital is 10% and assume that capital markets are perfect.

1. (a) What is total value of Iota if the firm decides to expand? What is the NPV of Iotas Expansion project?

2. (b) Iota's board of directors are wondering if Iota's stock price would be higher if they used the $200 million to repurchase shares instead of funding the expansion. What is the stock price after Iota uses the $200 million to repurchase? If you were advising the board, what action would you recommend to the board, expansion or repurchase?