Use the Information for the Question(s)below

question 56

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.
-Omicron's enterprise value is closest to:

• A)$500 million.
• B)$900 million.
• C)$450 million.
• D)$400 million.

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Definitions:

Health Insurance

A type of insurance coverage that pays for medical and surgical expenses incurred by the insured, offering financial protection against high healthcare costs.

Wage Rate

The fixed amount of money or compensation paid to an employee by an employer in return for work performed.

Capital

Refers to wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.

Fixed Proportions

A production process where inputs are used in strict, unchangeable ratios, without the flexibility to substitute one input for another.