PRD Technology has $84 million in excess cash and no debt. The firm expects to generate additional free cash flows of $6

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Prd Technology Has 84 Million In Excess Cash And No Debt The Firm Expects To Generate Additional Free Cash Flows Of 6 1 (64.46 KiB) Viewed 57 times

PRD Technology has $84 million in excess cash and no debt. The firm expects to generate additional free cash flows of $64 million per year in perpetuity and will pay out these future free cash flows as regular dividends. PRD's unlevered cost of capital is 8% and there are 25 million shares outstanding. The firm's board is meeting today to decide whether to pay out its $84 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. Assume perfect capital markets. Now assume that you own 5,000 shares of PRD stock and that PRD uses the entire $84 million to pay a special dividend. Suppose you are unhappy with PRD's decision and would have preferred that PRD used the excess cash to repurchase shares. The number of shares that you need to buy or sell to undo the dividend in a way that will provide you with the same outcome that you would have obtained if PRD had instead repurchased shares is closest to: Sell 300 shares out of the shares you own Sell 445 shares out of the shares you own Buy 525 additional shares Buy 864 additional shares None of the above