Use the Information for the Question(s)below

question 87

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 to repurchase shares.The amount of the regular yearly dividends in the future is closest to:

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

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Definitions:

Familiarity

A sense of recognition or understanding of something or someone due to previous exposure or experience.

Situation

The set of all external conditions and influences affecting the performance or outcome of a process, event, or decision.

Previously Experienced

Having encountered, undergone, or lived through something in the past.

Déjà Vu

A sensation of having already experienced a current situation, often accompanied by a feeling of familiarity, eeriness, or strangeness.