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JUNE EXAM MBM Industries is an all-equity firm with 50 million shares outstanding. MBM has 200 million in cash and expects future free cash flows
JUNE EXAM
- MBM Industries is an all-equity firm with 50 million shares outstanding. MBM 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 firm's operations, which in turn will increase future free cash flows by 12%. MBM's cost of capital is 10%; assume that capital markets are perfect.
- What is the value of MBM if it uses the 200 million to expand?
- What is the value of MBM if it does not use the 200 million to expand and holds the cash instead? (5 marks)
- What is the NPV of MBMs expansion project?
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International Financial Reporting A Practical Guide
Authors: Alan Melville
6th edition
1292200743, 1292200766, 9781292200767, 978-1292200743
