Iota Industries is an all-equity firm with 50 million shares outstanding. Iota has $200 million in cash and expects future free cash flows of $75 million per year. Management plans to use the cash to expand the firms operations, which will in turn increase free cash flows by 12%. Iotas cost of capital is 10%. Assume that capital markets are perfect.

(a) The value of Iota if they use the $200 million to expand is closest to: (1) $825 million (2) $688 million (3) $840 million (4) $950 million (b) The value of Iota if they do not use the $200 million to expand and hold the cash instead is closest to: (1) $840 million (2) $825 million (3) $950 million (4) $688 million (c) The price per share of Iota if they use the $200 million to expand is closest to: (1) $13.75 (2) $16.50 (3) $19.00 (4) $16.80 (d) The price per share of Iota if they do not use the $200 million to expand and hold the cash instead is closest to: (1) $16.50 (2) $16.80 (3) $19.00 (4) $13.75 (e) The NPV of Iotas expansion project is closest to: (1) -$110 million (2) -$137.5 million (3) $0 (4) $75 million (f) A member of Iotas board of directors suggests that Iotas stock price would be higher if they used the $200 million to repurchase shares instead of funding the expansion. If you were advising the board, what course of action would you recommend, expansion or repurchase? Which provides the higher stock price? Explain. (g) Suppose that Iota is able to invest the $200 million in excess cash into a project that will increase future cash flows by 30%. If you were advising the board, what course of action would you recommend, investing the $200 million in an expansion project that will raise future free cash flows by 30% or use the $200 million to repurchase shares? Which provides the higher stock price? Explain.