Palo Alto Enterprises Has $200,000 in Cash

question 93

Multiple Choice

Palo Alto Enterprises has $200,000 in cash. They wish to invest the money in Treasury bills at 5% and use the returns to pay dividends to shareholders after a year. Alternatively they can pay a dividend and allow shareholders to make the investment. In perfect capital markets, which option will shareholders prefer?

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

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