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Palo Alto Enterprises has £300,000 in cash. They wish to invest the money in Treasury bills at 8% rate of return 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 and no transaction costs and tax rates, which option will shareholders prefer?   A. immediate cash dividend   B. dividend after one year   C. prefer half from each source   D. indifferent between options

Palo Alto Enterprises has £300,000 in cash. They wish to invest the money in Treasury bills at 8% rate of return 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 and no transaction costs and tax rates, which option will shareholders prefer?   A. immediate cash dividend   B. dividend after one year   C. prefer half from each source   D. indifferent between options

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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8.  Palo Alto Enterprises has £300,000 in cash. They wish to invest the money in Treasury bills at 8% rate of return 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 and no transaction costs and tax rates, 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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