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romanna [79]
3 years ago
7

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 in excess cash to pay a special dividend. The amount of the regular yearly dividends in the future is closest to ________.
Business
1 answer:
Sergeu [11.5K]3 years ago
5 0

Answer:

$4 per share

Explanation:

The formula to compute the regular yearly dividends in the future is shown below:

= Free cash flow ÷ outstanding shares

= $40 million ÷ 10 million shares

= $4 per share

It shows a relationship between the free cash flow and the outstanding shares

All other information which is given is not relevant. Hence, ignored it

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