question archive Brian is a manager at Gamma Delta and has been asked by the CEO to make a recommendation of if they should buy back shares with their cash or make another investment into the company
Brian is a manager at Gamma Delta and has been asked by the CEO to make a recommendation of if they should buy back shares with their cash or make another investment into the company
Subject:FinancePrice: Bought3
Brian is a manager at Gamma Delta and has been asked by the CEO to make a recommendation of if they should buy back shares with their cash or make another investment into the company. Gamma Delta has 300 million shares outstanding selling for $3 a share. The company has $60 million in cash and expects FCF of $90 million per year in perpetuity. If they use the cash to expand the companies operations, this will increase the future FCF to $95 million per year. The cost of capital for Gamma Delta's investments is 10%.
1. After expansion, what is the price per share?
2. If a share buyback was done instead of the expansion, then what would be the price per share?
3. What should Brian recommend to the CEO?
