EA Enterprise 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.

EA Enterprise 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. BEA’s unlevered cost of capital is 10% and there are 10 million shares outstanding. BEA’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. BEA’s enterprise value is closest to:
[Hint: Enterprise Value = PV(Future FCF)]
$400 million
$450 million
$500 million
$900 million

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