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:

Short-Run Phenomenon

An event or circumstance that occurs and resolves within a brief period, affecting economic variables temporarily.

Classical Region

In economic theory, a phase where the supply of labor is abundant and the wage rates are therefore determined by the cost of living, not by the demand for labor.

Aggregate Supply Curve

An economic curve illustrating the overall supply of goods and services by all businesses and the government at various overall price levels in a given period.

Maximum Output Level

refers to the highest amount of production a company can achieve with the current resources and technology.