Use the Information for the Question(s)below

question 98

Multiple Choice

Use the information for the question(s) below.
Vezuvo Technologies has $75 million in excess cash and no debt. The firm expects to generate additional free cash flows of $50 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Vezuvo's unlevered cost of capital is 10% and there are 10 million shares outstanding. Vezuvo's board is meeting to decide whether to pay out its $75 million in excess cash as a special dividend or to use it to repurchase the firm's shares.
-Assume that Vezuvo uses the entire $75 million in excess cash to pay a special dividend. The amount of the special dividend is closest to:

• A)$6.00.
• B)$7.00.
• C)$7.50.
• D)$6.50.

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Definitions:

Classical Conditioning

A learning process in which an innate response to a potent stimulus becomes transferred to a previously neutral stimulus.

Latent Learning

A form of learning that occurs without any obvious reinforcement of the behavior or associations that are learned, often becoming apparent when there is an incentive to demonstrate it.

Instinctive Drift

Instinctive drift refers to the tendency of an animal to revert to instinctual behaviors even after learning new behaviors via operant conditioning.

Instinctive Drift

The phenomenon where established habits learned through operant conditioning start to revert to innate behavioral patterns.