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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.
Federal Deposit Insurance Corporation
A U.S. government agency that insures deposits in banks and thrift institutions for at least $250,000 per depositor, per bank.
Compounded Monthly
The process of calculating interest on both the initial principal and the accumulated interest from previous periods, applied on a monthly basis.
Check Register
A record of all checks written, deposits made, and balances in a checking account, used for managing finances.
Bank Statement
A summary of financial transactions that have occurred over a given period on a bank account.
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