Palo Alto Enterprises Has $300,000 in Cash

question 64

Multiple Choice

Palo Alto Enterprises has $300,000 in cash.They wish to invest the money in Treasury bills at 8% and use the returns to pay dividends to shareholders after a year.Alternately,they can pay a dividend and allow shareholders to make the investment.If corporate tax rates are 35%,which option will shareholders prefer?

• A)immediate cash dividend
• B)dividend after one year
• C)prefer half from each source
• D)indifferent between options