Omicron Technologies has $50 million in excess cash and no debt. In addition, the firm expects to generate additional free cash flows of $40 million per year in subsequent years 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.

a. What is Omicrons enterprise value?

b. What is Omicrons market value of equity?

c. Given the information in the problem, what will be the amount of the regular dividend starting next year?

d. If they decide to pay the full excess cash as a special dividend today, what will be the amount of the special dividend?

e. What is the price of the stock cum-dividend i.e. right before ex-dividend date?

Now, suppose Omicron decides not to pay the special dividend today, and instead they re-invest the 50 million in cash, expecting to receive a return of 5% one year from now. The cost of capital of this investment project is also 10%. Omicron expects to distribute 50 million plus the return generated by the investment as a special dividend, one year from now. This investment is independent from the rest of the operations of the firm and will not affect the original forecast of 40 million in free cash flows per year starting next year.

f. What is the dollar amount of the new special dividend, that will be distributed one year from now? What is its present value?

g. What are the cash flows described by this dividend policy?