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ABC is an all-equity firm with 100 million shares outstanding. ABC has $100 million in cash and expects future free cash flows of $50 million
ABC is an all-equity firm with 100 million shares outstanding. ABC has $100 million in cash and expects future free cash flows of $50 million per year forever. Management plans to use the cash to expand the firm's operations, which will in turn increase future free cash flows to $60 million per year that will last forever. If the cost of capital of ABC's investments is 10% answer the following questions C If ABC decides to expand, what will be the market value of the company (per share)? O A. $7.00 O B. $6.00 OC. $1.00 O D. $5.00 What will be the value of the company if ABC chooses not to expand ? O A. $700 million O B. $500 million O C. $600 million OD. $100 million Is ABC better off expanding operations? O A. No OB. The company is indifferent to expansion OC. not enough information O D. Yes
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