Use the Information for the Question(s)below

question 90

Multiple Choice

Use the information for the question(s) below.
Consider the following tax rates:
*The current tax rates are set to expire in 2010 unless Congress extends them.The tax rates shown are for financial assets held for one year.For assets held less than one year,capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket) ;the same is true for dividends if the assets are held for less than 61 days.
-In 2006,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 6%,then the present value (PV) of the additional taxes paid by Luther would be closest to:

• A)$35 million
• B)$290 million
• C)$175 million
• D)$585 million

---

Definitions:

Fixed Costs

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance.

Discounted Cash Flow (DCF)

A valuation method used to estimate the value of an investment based on its future cash flows, adjusted for the time value of money.

Capital Budgeting Techniques

Methods used to evaluate and prioritize investment projects or expenditures, such as NPV, IRR, Payback Period, and Profitability Index.

Small Businesses

Enterprises characterized by a small number of employees, limited revenue, and size within their industry.