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:

Cold Front

A leading edge of a cooler mass of air, replacing (at ground level) a warmer mass of air, which can lead to dramatic changes in weather conditions.

Rain Shadow Effect

A climatic phenomenon where a mountain range causes precipitation on one side, creating a dry area on the leeward side due to the blocking of rain-producing weather systems.

Tornadoes

are violently rotating columns of air that are in contact with both the surface of the Earth and a cumulonimbus cloud or, in rare cases, the base of a cumulus cloud, known for causing significant destruction.

Per Annum

A Latin term meaning "per year," used to describe a rate or amount measured over the course of a year.