World Telephone & Telegraph (WTT) is considering the establishment of a zero-balance system for its dividend payment

Question:

World Telephone & Telegraph (WTT) is considering the establishment of a zero-balance system for its dividend payment account. The firm pays common stockholders quarterly dividends. Currently, WTT deposits the necessary funds to cover the dividend payments on the day the checks are mailed to shareholders. A typical of when the checks clear the dividend account is as follows:

WTT can earn 7.5 percent per annum on any funds released from its dividend payment account using a zero-balance system.
a. Determine the annual pretax returns the firm would earn on the funds released from a zero-balance system.
b. What other considerations need to be examined in making a decision about the desirability of establishing such asystem?

Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...