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.

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Definitions:

Complications

Problems or difficulties that arise which make a situation harder to deal with or resolve.

Prudent Businessperson

An individual who exercises care, diligence, and wisdom in making business decisions, similarly to how a reasonable person would act under comparable circumstances.

Specific Performance

A legal remedy requiring a party to perform a specific act, often the completion of a contract, rather than paying damages for non-performance.

Contract Law

The body of law governing the formation, execution, and enforcement of agreements between parties.