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Old 08-29-2010, 10:12 AM
ameri ameri is offline
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Join Date: Aug 2010
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Default Finance question Help

Hi guys, I'm trying to understand this question...I would appreciate if someone can lead me in the right direction. Any help appreciated.... Thanks Ameri

Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generateadditional free cash flows of $40 million per year in subsequent years and will pay out thesefuture free cash flows as regular dividends. Omicron’s unlevered cost of capital is 10% and thereare10 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’sstock.

a) What is Omicron's enterprise value?

b) Including its cash, what is Omicron's total market value?

c) Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.

What is the amount of special dividend per share?

d) Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.

What is the amount of the regular yearly dividends in the future?

e) Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend.

What is Omicron's cum-dividend price?

f)Assume that Omicron uses the entire $50 million to repurchase shares. What is the number of shares that Omicron will have after the stock repurchase?

g) Assume that Omicron uses the entire $50 million to repurchase shares. What is theregular yearly dividends in the future?



Last edited by ameri; 08-29-2010 at 10:29 AM.
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