Omicron Technologies Has $50 Million in Excess Cash and No

question 44

Multiple Choice

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 Omicron uses the entire $50 million in excess cash to pay a special dividend. The amount of the special dividend is closest to ________.

• A) $5.00
• B) $4.00
• C) $6.00
• D) $10.00

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Definitions:

Progressive

A political and social philosophy advocating for reform and improvements in social justice, welfare, and the protection of civil liberties.

Regressive

A term describing a tax system where the tax rate decreases as the taxable amount increases, disproportionately affecting those with lower incomes.

Payroll Tax

Taxes imposed on employers and employees, calculated as a percentage of the salaries that employers pay their staff.

Federal Personal Income Tax

A tax levied by the federal government on the yearly income of individuals, with the rate applied varying according to the income level.