Use the Information for the Question(s)below

question 87

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 to repurchase shares. The number of shares that Vezuvo will repurchase is closest to:

• A)1.2 million.
• B)1.9 million.
• C)1.3 million.
• D)1.1 million.

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Definitions:

Relate

To establish a connection or relationship between two or more things.

Balance Sheet Accounts

Balance sheet accounts are the accounts that reflect the assets, liabilities, and shareholders' equity of a company, as recorded on the balance sheet.

Income Statement Accounts

Accounts that are used to prepare the income statement, summarizing a company's revenues, expenses, and profits over a period.

Deferrals

Income or expenses that have been recorded but not yet earned or used, respectively, affecting future accounting periods.