Use the information for the question(s) below. Omicron Technologies has $50 mill

Question

Use the information for the question(s) below. 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, omicrons unlevered cost of capital is 10% 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. Including its cash, Omicron's total market value is closest to: A $400 million B. $900 million c $450 million D $500 million

Explanation / Answer

Regular dividend payable per year in future = $40 million Unlevered cost of capital = 10% Omicron's total market value is closest to = $40 million / 10% = $400 million The answer is Option A

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