Question
Omicron Technologies has $50 million in excess cash and no debt.The firm expects to generate additional free cash flows of $40million per year in subsequent
Omicron Technologies has $50 million in excess cash and no debt.The firm expects to generate additional free cash flows of $40million per year in subsequent years and will pay out these futurefree cash flows as regular dividends. Omicrons unlevered cost ofcapital is 10% and there are 10 million shares outstanding.Omicron's board is meeting to decide whether to pay out its $50million in excess cash as a special dividend or to use it torepurchase shares of the firm's stock. Assume that you own 2500shares of Omicron stock and that Omicron uses the entire $50million to pay a special dividend. Suppose you are unhappy withOmicron's decision and would prefer that Omicron used the excesscash to repurchase shares (you will not sell in case of arepurchase). The number of shares that you would have to buy inorder to undo the special cash dividend that Omicron paid isclosest to:
125 | ||
275 | ||
250 | ||
310 |
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