Question
Use the information for thequestion(s) below. Omicron Technologies has$50 million in excess cash and no debt. The firm expects to generate additional free cash flows
Use the information for thequestion(s) below.
Omicron Technologies 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.Omicron's unlevered cost of capital is10% 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 thefirm's stock.
Assume that you own 2500 shares of Omicron stock and that Omicron uses the entire$50 million to pay a special dividend. Suppose you are unhappy withOmicron's decision and would prefer that Omicron used the excess cash to repurchase shares. The number of shares that you would have to buy in order to undo the special cash dividend that Omicron paid is closestto:
A.250.
B.275.
C.310.
D.125.
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