Omicron Technologies Has $40 Million in Excess Cash and No

question 101

Multiple Choice

Omicron Technologies has $40 million in excess cash and no debt. The firm expects to generate additional free cash flows of $32 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 8 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $40 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. Assume that you own 2500 shares of Omicron stock and that Omicron uses the entire $40 million to repurchase shares. Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to pay a special dividend. The number of shares that you would have to sell in order to receive the same amount of cash as if Omicron paid the special dividend is closest to ________ shares.

• A) 227.27
• B) 272.73
• C) 454.55
• D) 181.82

---

Definitions:

Integer Models

Mathematical models in operations research where the solution variables are required to be integers, often used in decision-making for optimal allocation and scheduling.

Continuous Nature

Characteristic of processes, functions, or variables that are uninterrupted and not discrete, allowing for an infinite number of possible values.

New Price

The updated or current cost of a product or service as adjusted over time or due to various factors.

Total Revenue

The total amount of income generated by the sale of goods or services related to a company's primary operations.