Use the Information for the Question(s)below

question 28

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 repurchase is closest to:

• A)1.0 million.
• B)1.2 million.
• C)1.1 million.
• D)0.9 million.

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Definitions:

Farmer's Market

A public and recurring assembly of farmers or their representatives selling the food and products they produce directly to consumers.

Implicit Costs

The opportunity costs of using resources that a company already owns, not directly paid for with cash.

Accounting Profit

The total revenue of a business minus the explicit costs, representing the financial gain in accounting terms.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, representing the additional return over the investor's opportunity cost.