Alinda Technologies

Alinda Technologies has $60 million in excess cash and no debt. The firm expects to generate additional free cash flows of $50 million per year in perpetuity and will pay out these future free cash flows as regular dividends. Alinda’s unlevered cost of capital is 8% and there are 20 million shares outstanding. The firm’s board is meeting to decide whether to pay out its $60 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. Suppose that you own 5,000 shares of Alinda stock and that Alinda uses the entire $60 million to pay a special dividend. You are unhappy with Alinda’s decision and would have preferred that Alinda used the excess cash to repurchase shares. Show exactly how you could undo the dividend in a way that will provide you with the same outcome that you would have obtained if Alinda had instead repurchased shares. Assume perfect capital markets.