Question
The BBB Pharmaceutical Company has $250,000 in excess cash and is considering two alternatives. Alternative A is to pay the extra cash in the form
The BBB Pharmaceutical Company has $250,000 in excess cash and is considering two alternatives. Alternative A is to pay the extra cash in the form of a dividend to its stockholders. Alternative B is to invest the cash in a Tbill paying 5% interest after tax, and then distribute the cash as a dividend. The firm's stockholders can also invest in the Tbill for the same yield. If the corporate tax rate is 30% and the personal tax rate is 30%, which alternative would you recommend?
A. Recommend alternative A.
B. Recommend alternative B.
C. Recommend either alternative.
D. You can not recommend unless you have more information.
E. None of the above.
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