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:

Depreciation Expense

An accounting method that allocates the cost of a tangible asset over its useful life, representing the wear and tear, deterioration, or obsolescence of the asset.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time, typically reported on the income statement.

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations based on its current income.

Cash Coverage Ratio

A financial metric that measures a company's ability to cover its debt obligations with its operating cash flow.