Use the Information for the Question(s)below

question 87

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 amount of the regular yearly dividends in the future is closest to:

• A)$9.00.
• B)$5.00.
• C)$4.50.
• D)$4.00.

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Definitions:

Res Ipsa Loquitur

A legal doctrine that allows for the presumption of negligence in a lawsuit if the accident could not have happened without negligence.

Negligence

The failure to take reasonable care to avoid causing injury or loss to another person, resulting in legal liability for the negligent party.

Liability

Legal responsibility for one's actions or for a particular outcome, often involving compensation for harm or injury caused.

Bank Building

A structure specifically designed to house the functions and services of a banking institution.