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irinina [24]
3 years ago
10

The 2019 balance sheet of Dyrdek’s Skate Shop, Inc., showed $530,000 in the common stock account and $2.3 million in the additio

nal paid-in surplus account. The 2020 balance sheet showed $570,000 and $2.5 million in the same two accounts, respectively. If the company paid out $320,000 in cash dividends during 2020, what was the cash flow to stockholders for the year?
Business
1 answer:
Tju [1.3M]3 years ago
4 0

Answer:

$80,000

Explanation:

The  \ expression \  for \  calculating \  cash  \ flow  \ to  \ stockholders \ is:

Cashflow  \ = \  Dividend  \ paid  \ during \  the \  year  \ -  \ change  \ in  \ t he \  value  \ of \  common  \ stock  \ during \  -  \ change \ in \ value \  of \ stock \ in \ the  \ previous \  yearHere;

Change \  in \  value  \ of \  Common  \ stock \ during  \ the  \ year \ = \ Value \ of \  Common \ stock \  of  \ the  \ Curren t \ Year -  Value\  of  \ Common  \ stock  \ of  \ the \ Previous \  Year

Change   \ in  \ valu e \  of  \ Additional \  paid  \ in  \ surplus \  account \  during  \ the \  year =

Value  \ of  \ Additional \ paid  \ in \  surplus \ account \ o f \  the  \ Current \  Year \ - \ Value \  of \ Additional \  paid  \ in \ surplus \  account \  of \ th e \ Previous \  Year

From the information given:

Dividend \ Payment  \ during \  the \  year 2020 = $320000

Value \  of  \ stock \  in \  current  \ yr= i.e. 2020 = $570000

Value \ of \ stock \ in \ previoius \ yr = i.e. 2019 = $530000

Change = $570000 - $530000 = $40,000

Value  \ of \  Ad ditional \  paid-in  \ surplus   \  acct  \ of    \ the  \ current  \ year = $2,500,000

Value  \ of \  Ad ditional \  paid-in  \ surplus   \  acct  \ of    \ the  \ previous  \ year = $2,300,000

Change = $2,500,000 - $2,300,000  = $ 200000

∴

By  \ using \  the  \ above \  information \ in \  the \  formula  \ for  \ calculating  \ the  \ cash  \ flow \ to

\ stackholder, \  we \ get:

= $320000 - $40,000 - $ 200000

= $80,000

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Solution :

Given :

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\text{After tax nominal rate} = \text{Nominal interest rate} $\times (1-\text{tax rate})$

\text{After tax nominal interest rate} = $6.5 \times (1-0.10)$

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                                                 = 5.85

After tax real interest rate = \text{after tax nominal rate} - \text{inflation rate}

                                           = 5.85 - 2.0

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\text{Inflation rate} = 7.0

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\text{Nominal interest rate} = \text{real interest rate} + \text{inflation rate}

                                   = 7 + 4.5

                                  = 11.5

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                                                  $=11.5 \times (1 - 0.10)$

                                                  $=11.5 \times 0.90$

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\text{After tax nominal interest rate} = 11.5 x (1 - 0.10)

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\text{After tax nominal interest rate} = \text{after tax nominal rate} - \text{inflation rate}

                                           = 10.35 - 7.0

                                          = 3.35

Putting all the value in table :

\text{Inflation rate}    Real interest  Nominal interest  After tax nominal  After tax  

                                  rate                rate               interest rate       interest rate

2.0                             4.5                  6.5                        5.85                   3.85

7.0                              4.5                11.5                         10.35                3.35

Comparing with the \text{higher inflation rate}, a \text{lower inflation rate} will increase the after after tax real interest rate when the government taxes nominal interest income. This tends to encourage saving, thereby increase the quantity of investment in the economy and the increase the economy's long-run growth rate.

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