Assume that Omicron uses the entire $60 million to repurchase shares. The amount of the regular yearly dividends in the future is closest to ________
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 9% 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.
A) $3.56
B) $5.34
C) $4.45
D) $8.90
Answer: C
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