Use the information for the question(s) below.
Consider the following tax rates:
*The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.
-In 2006,Luther Incorporated paid a special dividend of $5 per share for the 100 million shares outstanding.If Luther has instead retained that cash permanently and invested it into treasury bills earning 6%,then the present value of the additional taxes paid by Luther would be closest to:
A) $35 million
B) $290 million
C) $175 million
D) $585 million

Question

Use the information for the question(s) below.
Consider the following tax rates:
  *The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.
-In 2006,Luther Incorporated paid a special dividend of $5 per share for the 100 million shares outstanding.If Luther has instead retained that cash permanently and invested it into treasury bills earning 6%,then the present value of the additional taxes paid by Luther would be closest to:
A) $35 million 
B) $290 million 
C) $175 million 
D) $585 million

Quizplus · Accepted Answer

C) PV 11ea7e54_8cb4_9a16_ba34_fb0568c12c8a_TB1620_11 $5 × 100M shares × .35 = $175 million

Use the Information for the Question(s) Below