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solong [7]
3 years ago
6

Omicron Technologies has $60 million in excess cash and no debt. The firm expects to generate additional free cash flows of $48

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 12 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $60 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 $60 million to repurchase shares. The amount of the regular yearly dividends in the future is closest to_______.
A) $4.45
B) $3.56
C) $5.34
D) $8.90
Business
1 answer:
pochemuha3 years ago
4 0

Answer:

The closest answer is option (A) $4.45

Explanation:

Solution

Now

Let us assume that Omicron spends the entire $60 million to re-bought shares.

Thus

The amount of the regular yearly dividends in the future is nearest to:

Enterprise value =$48/0.10 = $480 million

So

The market value = Enterprise value + cash = $480 + $60 = $540 million

Share price = market value / shares outstanding = $540 million / 12 million = $45

Now

The number of shares re-bought = $60 million / $45 = 1,333,333 shares

Shares outstanding = 12,000,000 - 1,333,333 = 10,666,667

Dividend = $48 million free cash flow / 10,666,667 = $4.49

Therefore The amount of the regular yearly dividends in the future is closest to $4.45

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Design Interiors has a cost of equity of 14.9 percent and a pretax cost of debt of 8.6 percent. The firm's target weighted avera
Savatey [412]

Answer:

0.73

Explanation:

Given that

WACC = 11%

Tax rate = 34%

Cost of equity = 14.9 %

Cost of debt = 8.6%

Recall that

WACC = (cost of equity × % of equity) + (cost of debt × % of debt) + ( 1 - tax rate)

We are to find

Cost of debt and cost of equity

Let

Cost of debt be x

Cost of equity be (1 - x)

Thus,

0.11 = (1 - x)(0.149) + (x)(0.086)(1 - 0.34)

x = 0.4228

Therefore,

Debt-equity ratio

= Cost of debt/cost of equity

= 0.4228/(1 - 0.4228)

= 0.73

4 0
3 years ago
Read 2 more answers
Dakota Corporation decided to issue three-year bonds denominated in 5 million Russian rubles at par. The bonds have a coupon rat
sertanlavr [38]

Answer:

23.39%

Explanation:

From the given information, the amount was raised in rubies, Hence, we will convert them to dollars to be able to pay back the needed obligations.

However, according to the exchange rates, the IRR of dollar cash flow is the actual cost of financing that the company will address.

By applying the EXCEL FORMULA to compute the actual cost of financing, we get;

   A                    B                    C                    D                          E

Coupon              17%

Year                      0                    1                    2                         3

Cashflow in

rubles            5,000,000   5000000*17%  5000000*17%    5000000+850

                                           = 850000          = 850000         000

                                                                                                 = 5850000

Exchange          $0.30         $0.032                 $0.034              $0.035

rate

(per rubles)   5,000,000       5,000,000          5,000,000      5,000,000

Cash flow      × 0.03            × 0.032               × 0.034           × 0.035

in dollars    =  $150000.00  27200.00        28900.00           204750.00

IRR                   23.39%

8 0
3 years ago
When it comes to credit cards, what does prepaid mean?
stiv31 [10]
prepaid means already paid
8 0
2 years ago
an offer that can only be accepted by an offere's performance creates a(n) __________________________ contract​
goldenfox [79]

Answer: unilateral contract

Explanation:

An unilateral contract is a contact that is formed when an individual offers to do a particular thing in return for either money or something else that was agreed on.

Once such individual does that thing, he or she has to be given what was agreed on in the contract. A typical example is the contact regarding an insurance policy.

Therefore, an offer that can only be accepted by an offere's performance will create a unilateral contact.

4 0
3 years ago
Oaktree Company purchased new equipment and made the following expenditures:
I am Lyosha [343]

Answer:

The Journal entries are as follows:

(1)

Equipment A/c       Dr. $71,890

To cash                                           $3,790

To accounts payable                     $68,100

(To record the purchase of equipment)

Workings:

Equipment value:

= Purchase price + Sales tax + Freight charges for shipment of equipment + Installation of equipment

= 64,000 +4,100 + 890 + 2,900

= $71,890

Cash Paid:

= Freight charges for shipment of equipment + Installation of equipment

= 890 + 2,900

= $3,790

Accounts payable = Purchase price + Sales tax

                               = 64,000 +4,100

                               = $68,100

(2)

Prepaid Insurance A/c    Dr. $1,090

To cash A/c                                             $1,090

(To record any expenditures not capitalized in the purchase of equipment)

7 0
3 years ago
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