Use the Information for the Question(s)below

question 20

Multiple Choice

Use the information for the question(s) below.
Consider the following tax rates:

-In 2006,Luther Incorporated paid a special dividend of $5 per share for the 1 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)$2.90 million
• C)$1.75 million
• D)$5.85 million
• E)$3.25 million

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Definitions:

Average Variable Cost

The variable cost of production divided by the quantity produced, showing the cost of producing each additional unit.

Average Total Cost

The total cost of production divided by the number of units produced, representing the per-unit cost of production for a firm.

Rising

An increase or upward trend in value, quantity, or importance.

Average Variable Cost

The total variable cost divided by the number of units produced, representing the variable cost per unit of output.