Question

Hurricane Industries had a net income of $129,650 and paid 40 percent of this amount to shareholders in dividends. During the year, the company sold $80,250 in new common stock. What was the company's cash flow to stockholders?
a. 28390
b. 49400
c. -28390
d. 51860

Answer 1

Answer:

a. 28390

Explanation:

Stockholders cash flow is the net of cash inflows from stockholders and cash outflows to stockholders.

Net Income = $129,650

Payout Ratio = 40%

Cash outflow

Amount of Dividend Paid = $129,650 x 40% = $51,860

Cash Inflow

Common stock issue = $80,250

Net Stockholder's cash flow = $80,250 - $51,860

Net Stockholder's cash flow = $28,390

Answer 2

Answer:

C. -28390

Explanation:

The formula for calculating cash flow to share holders is

CFS = dividends paid - net new equity raised

dividends = 129650 * 0.4 =51860

new common stock = 80250

CFS= 51860 - 80250 =-28390