Palo Alto Enterprises has $300,000 in cash. They wish to invest the money in Treasury bills at 8% 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, which option will shareholders prefer?
A) immediate cash dividend
B) dividend after one year
C) prefer half from each source
D) indifferent between options
Answer: D
Business
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