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 the corporate tax rate is 40%. 38. if luther invests the excess cash in treasury bills, then the present value of the dividend per share next year will be closest to:

Present value is a financial concept which refers to the current value of a future stream of payments or receipts. It is an important concept used by investors and businesses to determine the value of a certain asset or cash flow in today's money. It is also used to calculate the value of a bond or an annuity. Present value is calculated by discounting the expected future cash flows by an appropriate discount rate. The greater the risk associated with the future cash flows, the higher the discount rate and the lower the present value. By understanding the concept of present value, investors and businesses can make well-informed decisions about their investments and cash flows.

let us take the Excess cash = 5 Million
Rate of interest = 5 percent
Value of T bill after a year = 5*(1+0.05)=5.25
now no of shares =1 million
Divident next year =5.25/1 = 5.25
hence the answer is 5.25

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