Omicron Technologies Has $50 Million in Excess Cash and No

question 99

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 8% 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 to repurchase shares. The number of shares that Omicron will repurchase is closest to ________.

• A) 0.73 million
• B) 1.09 million
• C) 0.9 million
• D) 1.82 million

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Definitions:

ROP

Reorder Point, the inventory level at which a new order should be placed to replenish stock before it runs out.

Common Components

Common Components refer to parts or materials used in the manufacturing of multiple product models or lines, helping to streamline production and reduce costs.

Component Commonality

The use of the same parts or materials in multiple products or systems to reduce inventory and increase efficiency.

Aggregation

the process of combining multiple elements, data, or inputs into a summarized or unified whole, often used in the context of data analysis or planning.