Use the Information for the Question(s)below

question 89

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 number of shares that Omicron will have outstanding following the repurchase is closest to:

• A)8.8 million.
• B)1.2 million.
• C)9.0 million.
• D)8.9 million.

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Definitions:

Floor Space

The total area available for certain purposes within a building, measured in square feet or square meters.

Contribution To Overhead

The portion of sales revenue that exceeds variable costs, contributing towards covering fixed costs and generating profit.

Indirect Expenses

Costs that are not directly tied to the production of goods or services, such as utilities, rent, and administrative salaries.

Indirect Costs

Expenses that are not directly attributable to a specific project or activity but are necessary for the general operation of a business.