Use the Information for the Question(s)below

question 3

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.
-Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.The amount of the regular yearly dividends in the future is closest to:

• A)$4.50.
• B)$5.00.
• C)$4.00.
• D)$9.00.

---

Definitions:

Supply-siders

Supply-siders are economists or policymakers who believe that reducing tax rates and regulatory barriers to production and investment can stimulate supply, leading to economic growth.

Aggregate Supply

The total supply of goods and services that firms in an economy are willing and able to produce at different price levels during a specific time period.

Automatic Stabilizers

Changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action

Budget Deficit

A situation where a government's expenditures exceed its revenues over a specific period of time.