Use the Information for the Question(s) Below

question 52

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 bonds 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 bonds
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) $5.00
• C) $4.75
• D) $5.25

---

Definitions:

Panel

A group of people selected to provide advice, information, or opinions on a specific issue, often seen in research studies or discussions.

Market Demand

The total quantity of a good or service that all consumers in a market are willing and able to buy at various prices.

Plumbing Market

A segment of the market that deals with the distribution and installation of water supply and sanitary systems in buildings.

Long-Run Equilibrium

A state in which all firms in an industry are producing at their minimum long-run average cost, and the market supply equals market demand.