Use the Information for the Question(s)below

question 56

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.
-Omicron's enterprise value is closest to:

• A)$500 million.
• B)$900 million.
• C)$450 million.
• D)$400 million.

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Definitions:

Ratios

Quantitative relationships between two or more values, often used for financial analysis, to assess the performance, health, and prospects of a business.

Ledgers

Financial records that contain a detailed account of all the financial transactions of a business.

Accrual Basis

An accounting method where transactions are recorded when they are earned or incurred, regardless of when cash is exchanged.

Cash Basis

An accounting method where revenues and expenses are recorded when they are actually received or paid out, not when they are earned or incurred.