Use the Information for the Question(s)below

question 89

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 to repurchase shares.The number of shares that Omicron will have outstanding following the repurchase is closest to:

• A)8.8 million.
• B)1.2 million.
• C)9.0 million.
• D)8.9 million.

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Definitions:

Debt Ratio

A financial ratio that measures the proportion of a company’s total debt to its total assets, indicating the company's leverage level.

Return on Common Stockholders' Equity

This metric measures the profitability attributable to equity holders, presenting the percentage of net income generated for each dollar of common stockholders' equity.

Total Asset Turnover

A metric that evaluates how efficiently a company can produce sales from its assets, achieved by contrasting net sales against the average total assets.

Inventory Turnover

A metric indicating the frequency at which a company's inventory is sold and replenished within a specific timeframe.