In 2006, Luther Incorporated paid a special dividend of $7 per share for the 120 million shares outstanding. If Luther has instead retained that cash permanently and invested it into Treasury bills earning 5%,
Consider the following tax rates:
Year Corporate Tax Rate Capital Gains Rate Ordinary Income Rate Dividend Rate
1997-2000 35% 20% 40% 40%
2001-2002 35% 20% 39% 39%
2003-2010 35% 15% 35% 15%
then the present value (PV) of the additional taxes paid by Luther would be closest to ________.
A) $42.00 million
B) $235.20 million
C) $294 million
D) $588.00 million
Answer: C
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