United Technologies has £50 million in excess cash
Subject: Business / Finance
Question
United Technologies has £50 million in excess cash and no debt. The firm expects to generate additional free cash flows of £40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. United’s unlevered cost of capital is 10% and there are 10 million shares outstanding. United'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's stock.
What are United’s enterprise and total market values?
Assume that United uses the entire £50 million in excess cash to pay a special dividend. What will be the amount of the regular yearly dividends in the future?
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