Sales $260,000, cost of goods sold $150,000, depreciation = $45,000, interest paid $35,000, addition to retained...

Question

Question

Sales $260,000, cost of goods sold $150,000, depreciation = $45,000, interest paid $35,000, addition to retained earnings $12

Answer 1

Answer #1

Net Income = [Sales - COGS - depreciation - Interest Paid] x (1 - t)

= [$260,000 - $150,000 - $45,000 - $35,000] x [1 - 0.30]

= $30,000 x 0.70 = $21,000

Dividends Paid = Net Income - Addition to Retained Earnings = $21,000 - $12,000 = $9,000

Cash Flow to Stockholders = Dividends Paid - Net New Equity

= $9,000 - $34,000 = -$25,000

Hence, Option Ä is correct.

Answer 2

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