Use the Information for the Question(s)below

question 27

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 pay a special dividend.Suppose you are unhappy with Omicron's decision and would have preferred that Omicron used the excess cash to repurchase stock.Detail exactly how you could undo the dividend in a way that will provide you with the same combination of cash and stock that you would have received if Omicron had not paid the special dividend.

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Definitions:

Milgram's Study

An experiment focusing on the conflict between obedience to authority and personal conscience.

Shock

A sudden and often intense disturbance of the mind, emotions, or sensibility, typically resulting from an unexpected event or experience.

Stanley Milgram

A psychologist famous for his experiments on obedience, demonstrating that people are willing to obey authority figures even when it involves harming others.

Obedience Study

A series of experiments conducted by Stanley Milgram, measuring the willingness of study participants to obey an authority figure who instructed them to perform acts conflicting with their personal conscience.