Omicron Technologies Has $50 Million in Excess Cash and No

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

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free