1. Rexton Oil is an all-equity firm with 20 million of shares outstanding. Rexton currently has a cash flow of $100 Million of USDs and expects future free cash flows of $100 Millions per year. Management plans to use the cash to expand the firm's operations, which will in turn increase future cash free cash flows to $500 Millions per year. If the cost of capital of Rexton's investments is 8%, calculate the stock price for the company if the expansion where to happen. 2. Rexton Oil is an all-equity firm with 20 million of shares outstanding. Rexton currently has a cash flow of $100 Million of USDs and expects future free cash flows of $100 Millions per year. Management plans to use the cash to expand the firm's operations, which will in turn increase future cash free cash flows to $500 Millions per year. If the cost of capital of Rexton's investments is 8%, calculate the stock price if the company decides to use the cash for a share repurchase rather than the expansion.

1. Rexton Oil is an all-equity firm with 20 million of shares outstanding. Rexton currently has a cash flow of $100 Million of USDs and expects future free cash flows of $100 Millions per year. Management plans to use the cash to expand the firm's operations, which will in turn increase future cash free cash flows to $500 Millions per year. If the cost of capital of Rexton's investments is 8%, calculate the stock price for the company if the expansion where to happen. 2. Rexton Oil is an all-equity firm with 20 million of shares outstanding. Rexton currently has a cash flow of $100 Million of USDs and expects future free cash flows of $100 Millions per year. Management plans to use the cash to expand the firm's operations, which will in turn increase future cash free cash flows to $500 Millions per year. If the cost of capital of Rexton's investments is 8%, calculate the stock price if the company decides to use the cash for a share repurchase rather than the expansion.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 6MC

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