Use the Information for the Question(s)below

question 79

Multiple Choice

Use the information for the question(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 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 that Omicron uses the entire $50 million in excess cash to pay a special dividend.Omicron's ex-dividend price is closest to:

• A)$40.00.
• B)$5.00.
• C)$50.00.
• D)$45.00.

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Definitions:

Serial-position Effect

A memory phenomenon in which recall accuracy varies as a function of an item's position in a study list, with better recall of items at the beginning and end.

Encoding Specificity

The theory that memory is enhanced when information available at encoding is also available at retrieval.

Interference Theory

The view that we may forget stored material because other learning interferes with it.

Serial-position Effect

A cognitive phenomenon where people tend to remember the first and last items in a series best, and the middle items worst.