Use the Information for the Question(s)below

question 22

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 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.

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Definitions:

Lopsided Distribution

A statistical distribution characterized by an asymmetry where values are more spread out on one side than the other.

Skewed

Refers to a distribution that is not symmetric, having one tail longer or more spread out than the other.

Mean

The arithmetic average of a distribution, obtained by adding the scores and then dividing by the number of scores.

Central Tendency

A statistical measure that identifies a single value as representative of an entire distribution. It aims to provide an accurate description of the entire data set.