Let's assume that a firm has $1,000,000 in excess cash that it can either pay out to shareholders now, or can invest in Treasury bills @10% interest. The firm would invest the cash and pay out the dividend in 5 years.
The personal income tax rate is 28%, the corporate tax rate is 34%, and the dividend tax rate is 15%.
Investor don't need the cash currently and would invest the funds for 5 years in Treasury bills.
What should the company do?