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 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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