Use the Information for the Question(s)below

question 55

Multiple Choice

Use the information for the question(s) below.
Luther Industries has $5 million in excess cash and 1 million shares outstanding.Luther is considering investing the cash in one-year treasury bills that are currently paying 5% interest,and then using the cash to pay a dividend next year.Alternatively,Luther can pay the cash out as a dividend immediately and the shareholders can invest in the treasury bills themselves.Assume that capital markets are perfect.
-If Luther invests the excess cash in treasury bills,then the dividend per share next year will be closest to:

• A)$5.00.
• B)$5.25.
• C)$4.75.
• D)$1.05.

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Definitions:

Issuer

An entity that develops, registers, and sells securities to finance its operations, which can be corporations, governments, or municipal bodies.

Investors

People or organizations that invest money with the aim of achieving financial gains.

Rule 10b-5

A regulation enacted under the Securities Exchange Act of 1934 that prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security.

Fiduciary Duty

A legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of property or money.