Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate free cash flows of $40 million per year in subsequent years (in perpetuity) and will pay out these future free cash flows as regular dividends. Omicrons unlevered cost of capital is 10% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. Assume perfect capital markets with no taxes.

1. Determine Omicrons current price per share (pre-payout).
2. If Omicron were to distribute the full $50 million in cash as a special dividend, what would be the special dividend per share and Omicrons ex-dividend price per share?

In what follow, assume that Omicron has chosen to use $25 million to pay a special dividend and the remaining $25 million to repurchase shares ex-dividend.

3. Your friend owns 2500 shares of Omicron stock and is unhappy with Omicron's decision. Your friend would prefer that Omicron use all the excess cash to pay a special dividend (as in part b)). Explain to your friend how she may generate the same payoffs (as she would in b)) by selling (some of) her shares. Assume that she sells her shares ex-dividend & that she can sell fractions of shares.

You answer must include, in particular, your friends cash flows (this year and in the future), as well as the number of shares that she should sell.