Assume that you own 2500 shares of Omicron stock and that Omicron uses the entire $50 million to pay a special dividend.Suppose you are unhappy with Omicron's decision and would prefer that Omicron used the excess cash to repurchase shares.The number of shares that you would have to buy in order to undo the special cash dividend that Omicron paid is closest to:
A) 125
B) 310
C) 250
D) 205

Question

Quizplus · Accepted Answer

B) Enterprise Value - PV(Future FCF) = 11ea7e5a_6ed0_b81f_9a0a_73ded87091fa_TB1623_11 = $400 million
Market value = Enterprise Value + cash = $400 + $50 = $450 million
However, once the $50 million in cash is used to pay the dividend, the new market value becomes $450 - $50 = $400 Million
Share price = 11ea7e5a_6ed0_b820_9a0a_f1c313c02e85_TB1623_11 = 11ea7e5a_6ed0_b821_9a0a_ed3088fa4e2a_TB1623_11 = $40.00
Dividends that you did not want to receive = 2,500 shares × $5 share = $12,500
Number of shares to sell = 11ea7e5a_6ed0_b822_9a0a_015ca21076eb_TB1623_11 = 312.50 shares

Assume That You Own 2500 Shares of Omicron Stock and That