Use the Information for the Question(s)below

question 42

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.
-A firm has $75 million of assets that includes $12 million of cash and 25 million shares outstanding. If the firm uses $12 million of cash to repurchase shares, what is the new price per share?

• A)$1
• B)$2
• C)$3
• D)$4

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Definitions:

Cross-sectional

A type of observational study that analyzes data from a population, or a representative subset, at a specific point in time.

Early Adolescence

A developmental stage referring to the period between childhood and adolescence, typically ages 10 to 14.

School Age

A stage in human development that typically refers to the period when children attend primary and secondary school, generally between the ages of 5 and 18.

Middle Adolescence

A developmental stage typically ranging from ages 14 to 17, characterized by increased independence, identity exploration, and emotional and social development.