A company currently has $25 million in excess cash and no debt. The company expects to generate
Question:
A company currently has $25 million in excess cash and no debt. The company expects to generate additional net after-tax cash flows of $20 million per year in subsequent years and will pay out these cash flows as a regular dividend for the foreseeable future. The company's (unlevered) cost of capital is 8% and there are 10 million shares outstanding. Its board is meeting to decide whether to pay out the $25 million in excess cash as a special dividend or to repurchase the company's shares. Assume that the board will use the entire $25 million in excess cash to repurchase its shares if it decides to do so.
What is the current market value of the company including the excess cash available today?
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow