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Harris Corporation is an all-equity firm with 100 million shares outstanding.  Harris has $250 million in cash...

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Finance

Harris Corporation is an all-equity firm with 100 million sharesoutstanding.  Harris has $250 million in cash and expectsfuture free cash flows of $85 million per year. Management plans touse the cash to expand the firm’s operations, which will in turnincrease future free cash flows by 15%. If the cost of capital ofHarris’ investments is 12%, how would a decision to use the cashfor a share repurchase rather than the expansion change the shareprice?   

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4.3 Ratings (688 Votes)
If Harris corporation uses the cash to expand its future free cash flows will increase by 15 ie 9775 million per year 85 million 115 Using the perpetuity formula its market value will be    See Answer
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Harris Corporation is an all-equity firm with 100 million sharesoutstanding.  Harris has $250 million in cash and expectsfuture free cash flows of $85 million per year. Management plans touse the cash to expand the firm’s operations, which will in turnincrease future free cash flows by 15%. If the cost of capital ofHarris’ investments is 12%, how would a decision to use the cashfor a share repurchase rather than the expansion change the shareprice?   

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