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:

Problem Solving

The process of identifying a challenge or difficulty and finding an effective solution for it.

Human Decision Making

The process by which individuals make choices or come to conclusions based on factors such as personal preference, reasoning, and external influences.

Weak Disposition

A tendency or inclination to behave in a certain way that is perceived as lacking in strength, confidence, or decisiveness.

Critical Thinking

Thoroughly exploring and critiquing a problem in order to reach a determination.