Question 5 continued (c) Kim Corp. has $50 million in excess cash and no debt. 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. Kim Corp.'s cost of capital is 10% and there are 10 million shares outstanding. Kim Corp.'s board decided to use the entire $50 million to repurchase shares. Assume that you own 2,500 shares of Kim Corp. stock and that Kim Corp. uses the entire $50 million to repurchase shares. Assume Kim Corp. goes ahead with the share repurchase. What is the dollar value of regular annual dividends in the future? (6 marks) e e t Question 5 continued (d) Use the numbers from part (c). Suppose you are unhappy with the company's decision to repurchase and would prefer that Kim Corp. used the excess cash to pay a special dividend. Assume perfect capital markets. What trade you could place in order to receive the same amount of cash equivalent to Kim Corp. paying the special dividend? (6 marks) T T T. T. - - T Question 5 continued (c) Kim Corp. has $50 million in excess cash and no debt. 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. Kim Corp.'s cost of capital is 10% and there are 10 million shares outstanding. Kim Corp.'s board decided to use the entire $50 million to repurchase shares. Assume that you own 2,500 shares of Kim Corp. stock and that Kim Corp. uses the entire $50 million to repurchase shares. Assume Kim Corp. goes ahead with the share repurchase. What is the dollar value of regular annual dividends in the future? (6 marks) e e t Question 5 continued (d) Use the numbers from part (c). Suppose you are unhappy with the company's decision to repurchase and would prefer that Kim Corp. used the excess cash to pay a special dividend. Assume perfect capital markets. What trade you could place in order to receive the same amount of cash equivalent to Kim Corp. paying the special dividend? (6 marks) T T T. T. - - T
