Omicron Technologies Has $60 Million in Excess Cash and No

question 12

Multiple Choice

Omicron Technologies has $60 million in excess cash and no debt. The firm expects to generate additional free cash flows of $48 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 9% and there are 12 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $60 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 $60 million in excess cash to pay a special dividend. Omicron's cum-dividend price is closest to ________.

• A) $39.56
• B) $59.33
• C) $98.89
• D) $49.44

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Definitions:

Semiannual Interest

Interest that is computed and disbursed semi-annually, commonly linked with loans or bonds.

Journal Entry

A record of financial transactions entered in a journal, a fundamental part of the double-entry bookkeeping system.

Carrying Value

Carrying value, or book value, is the net amount at which an asset or liability is valued on a balance sheet, factoring in its original cost minus depreciation, amortization, or impairment costs.