Luther Industries has $5 million in excess cash and 1 million shares outstanding. Luther is...
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Finance
Luther Industries has $5 million in excess cash and 1 million shares outstanding. Luther is considering investing the cash in
oneyear
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:
Question content area bottom
Part 1
A.
$5.00.
B.
$4.75.
C.
$5.25.
D.
$1.05.
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