Use the Information for the Question(s)below

question 27

Essay

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 you own 4000 shares of Omicron stock and that Omicron uses the entire $50 million to pay a special dividend.Suppose you are unhappy with Omicron's decision and would have preferred that Omicron used the excess cash to repurchase stock.Detail exactly how you could undo the dividend in a way that will provide you with the same combination of cash and stock that you would have received if Omicron had not paid the special dividend.

---

Definitions:

Personal Income

The total earnings received by an individual, including wages, salaries, and other sources, before taxes and other deductions.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Nazi Death Camps

Concentration and extermination camps operated by Nazi Germany during World War II, where millions of Jews and other persecuted groups were systematically murdered in the Holocaust.

Newsreels

Short films that were regularly released in a serial format to provide audiences with news coverage and updates on current events before the advent of television.