Use the Information for the Question(s)below

question 15

Multiple Choice

Use the information for the question(s) below.
Luther Industries has $5 million in excess cash and one million shares outstanding. Luther is considering investing the cash in one-year Treasury bonds 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 bonds themselves. Assume that capital markets are perfect.
-If Luther decides to pay the dividend immediately, the dividend per share will be closest to:

• A)$5.25.
• B)$1.05.
• C)$4.75.
• D)$5.00.

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Definitions:

Allowance for Doubtful Accounts

An accounting provision representing the estimate of uncollectable accounts receivable.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.

Accounts Receivable Turnover

The relationship between net sales and accounts receivable, computed by dividing the net sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.

Receivable

An amount of money owed to a firm by its customers as a result of the firm extending credit to them.