Use the Information for the Question(s)below

question 6

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 decides to pay the dividend immediately the dividend per share will be closest to:

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

---

Definitions:

Weighted Average Cost

A method of calculating the combined cost of goods available for sale by weighting the cost of each item by the quantity purchased.

Bonds Outstanding

The total amount of issued bonds by a corporation or government entity that have not yet been redeemed or reached their maturity date.