Payout Example - GenRon is considering how to pay out $20 million in excess cash to shareholders. The firm has no debt and expects to generate free cash flow of $48 million per year in perpetuity, starting next year. GenRon's unlevered cost of capital is 12%, so its enterprise value is: EV=PV(Fu utue FCF)=0.12$48million=$400 million - With the cash, Genron's market value is $420 million. It has 10 million shares outstanding. - GenRon's board is considering 3 options for distributing the excess cash: 1) Use the $20 million to pay a cash dividend. 2) Repurchase shares instead of paying a dividend. 3) Raise additional cash to pay a $48 million dividend. - What is the expected effect of each policy? Payout Example - GenRon is considering how to pay out $20 million in excess cash to shareholders. The firm has no debt and expects to generate free cash flow of $48 million per year in perpetuity, starting next year. GenRon's unlevered cost of capital is 12%, so its enterprise value is: EV=PV(Fu utue FCF)=0.12$48million=$400 million - With the cash, Genron's market value is $420 million. It has 10 million shares outstanding. - GenRon's board is considering 3 options for distributing the excess cash: 1) Use the $20 million to pay a cash dividend. 2) Repurchase shares instead of paying a dividend. 3) Raise additional cash to pay a $48 million dividend. - What is the expected effect of each policy