Use the Information for the Question(s)below

question 22

Essay

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 you own 4000 shares of Omicron stock and that Omicron uses the entire $50 million to repurchase shares.Suppose you are unhappy with Omicron's decision and would have preferred that Omicron used the excess cash to pay a special dividend.Detail exactly how you could create a homemade dividend that will provide you with the same combination of cash and stock that you would have received if Omicron paid the special dividend.

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Definitions:

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Diagnostic Interview Schedule

A structured assessment tool used by clinicians to diagnose psychiatric conditions based on standardized criteria.

Wechsler Adult Intelligence Scale

The most widely used IQ tests, designed to measure diverse aspects of intelligence. Developed by David Wechsler (1896–1981). See also WAIS-IV.

Intelligence Test

A standardized test designed to measure human intelligence and cognitive abilities.