How to Calculate Cash Flow to Shareholders

What is the cash flow to shareholders?

A. $2.1 million

B. $2.4 million

C. $1.7 million

D. $2 million

E. None of the options provided

Answer:

The correct answer is None of the options provided ($2.1 million, $2.4 million, $1.7 million, $2 million).

Shareholders' equity is $4.3 million at the beginning of the year and $3.7 million at the end of the year. Net income for the year is $1.4 million and shareholder dividends are $1.1 million.

The cash flow to shareholders can be calculated by subtracting the dividends from the sum of net income and the change in shareholders' equity.

Given:

Shareholders' equity at the beginning of the year = $4.3 million

Shareholders' equity at the end of the year = $3.7 million

Net income for the year = $1.4 million

Shareholder dividends = $1.1 million

To calculate the cash flow to shareholders, we need to find the change in shareholders' equity during the year:

Change in shareholders' equity = Shareholders' equity at the end of the year - Shareholders' equity at the beginning of the year

Change in shareholders' equity = $3.7 million - $4.3 million = -$0.6 million

The negative sign indicates a decrease in shareholders' equity during the year.

Now, we can calculate the cash flow to shareholders by adding the net income to the change in shareholders' equity:

Cash flow to shareholders = Net income + Change in shareholders' equity

Cash flow to shareholders = $1.4 million + (-$0.6 million) = $0.8 million

Therefore, the cash flow to shareholders is $0.8 million.