Use the Information for the Question(s) Below

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 invests the excess cash in Treasury Bills,then the dividend per share next year will be closest to:

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

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free