Use the Information for the Question(s)below

question 73

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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Definitions:

Procedures for Incorporation

The standardized legal steps and requirements followed to legally form and register a corporation with the state or appropriate authority.

Challenge

A call to engage in a competition or contest.

Corporation

A legal entity separate from its owners, offering limited liability to its shareholders and able to own property and sign contracts.

Close Corporation

A corporation whose shareholders are limited to a small group of persons, often family members.