Prada has ten million shares outstanding, generates free cash flows of $ 50 million each year and has a cost of capital of 10%. It also has $50 million of cash on hand
Prada wants to decide whether to repurchase stock or invest the cash in a project that generates free cash flows of $5 million each year. Should Prada invest or repurchase the shares?
A) indifferent between options
B) repurchase
C) invest
D) cannot say for sure
Answer: A
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