Millbury Gas and Oil's Rate of Return on Equity Is

question 12

Multiple Choice

Millbury Gas and Oil's rate of return on equity is 12%. It can either pay a dividend of $5.00 today or reinvest the money and pay a dividend of $5.60 at the end of the year. From a shareholder's point of view, the value of the dividend paid now is ________ and the value of the dividend paid a year from now is ________.

• A) $5.00, $4.46
• B) $5.00, $5.00
• C) $4.46, $5.00
• D) $5.60, $5.00

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Definitions:

Distribution of Income

Refers to the way in which total income is shared among the holders of different types of assets within an economy.

Negative Income Tax

A tax system that collects revenue from high-income households and gives subsidies to low-income households.

Family Income

The total amount of money earned by members of a family, typically measured annually.

Negative Income Tax

A welfare system that provides income support by offering a direct transfer of funds to individuals whose income falls below a certain threshold.