Use the Information for the Question(s)below

question 23

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.
-In 2018,Luther Incorporated paid a special dividend of $5 per share for the 100 million shares outstanding.If Luther has instead retained that cash permanently and invested it into treasury bills earning 5%,then the present value of the additional taxes paid by Luther would be closest to:

• A)$35 million.
• B)$290 million.
• C)$105 million.
• D)$585 million.

---

Definitions:

Disaggregating Data

The process of breaking down data into smaller parts or categories to analyze specific trends or patterns within the larger dataset.

Additional Assistance

Support or help provided to individuals or groups in need, which can include financial aid, counseling services, or physical assistance.

Inductive Reasoning

Reasoning from one or more specific experiences or facts to reach (induce) a general conclusion. (Also called bottom-up reasoning.)

Secondary Education

Literally, the period after primary education (elementary or grade school) and before tertiary education (college). It usually occurs from about ages 12 to 18, although there is some variation by school and by nation.