Corporate Finance Core Principles and Applications 5th Edition Ross Solutions Manual

CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE

Answers to Concept Questions

1. Thethree basicforms aresole proprietorships, partnerships, and corporations. Some disadvantages ofsoleproprietorshipsandpartnershipsare:unlimitedliability,limitedlife,difficultyintransferring ownership,andhardtoraisecapitalfunds.Someadvantagesare:simpler,lessregulation,theowners are also the managers, and sometimes personal tax rates are better than corporate tax rates. The primary disadvantage of the corporate form is the double taxation to shareholders on distributed earningsanddividends.Someadvantagesinclude:limitedliability,easeoftransferability,abilityto raise capital, and unlimited life. When a business is started, most take the form of a sole proprietorshiporpartnershipbecauseoftherelativesimplicityofstartingtheseformsofbusinesses

2. Tomaximizethecurrentmarket value(shareprice)of theequityof thefirm(whether it’spublicly tradedornot).

3. In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders electthedirectorsofthecorporation,whointurnappointthefirm’smanagement.Thisseparationof ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders.Ifsucheventsoccur,theymaycontradictthegoalofmaximizingthesharepriceofthe equityofthefirm.

4. Such organizations frequently pursue social or political missions, so many different goals are conceivable.Onegoalthatisoftencitedisrevenueminimization;i.e.,providewhatevergoodsand servicesareofferedatthelowestpossiblecosttosociety.Abetterapproachmightbetoobservethat even a not-for-profit business has equity. Thus, one answer is that the appropriate goal is to maximizethevalueoftheequity.

5. Presumably,thecurrentstockvaluereflectstherisk,timing,andmagnitudeofallfuturecashflows, bothshort-term and long-term.Ifthisiscorrect,thenthestatementisfalse.

6. Anargumentcanbemadeeitherway.Attheoneextreme,wecouldarguethatinamarketeconomy, allofthesethingsarepriced.Thereisthusanoptimallevelof,forexample,unethicaland/orillegal behavior,andtheframeworkof stockvaluation explicitlyincludes these. At theother extreme, we could argue that these are non-economic phenomena and are best handled through the political process.Aclassic(andhighlyrelevant)thoughtquestionthatillustratesthisdebategoessomething like this: “A firm has estimated that the cost of improving the safety of one of its products is $30 million. However, the firm believes that improving the safety of the product will only save $20 millioninproductliabilityclaims.Whatshouldthefirmdo?”

7. Thegoalwillbethesame,butthebestcourseofactiontowardthatgoalmaybedifferentbecauseof differingsocial,political,andeconomicinstitutions.

8. The goal of management should be to maximize the share price for the current shareholders. If management believes that it can improve the profitability of the firm so that the share price will exceed$35,thentheyshouldfighttheofferfromtheoutsidecompany.Ifmanagementbelievesthat this bidder or other unidentified bidders will actually pay more than $35 per share to acquire the company,thentheyshouldstillfighttheoffer.However,ifthecurrentmanagementcannotincrease thevalueofthefirmbeyondthebidprice,andnootherhigherbidscomein,thenmanagementisnot acting in the interests of the shareholders by fighting the offer. Since current managers often lose their jobs when the corporation is acquired, poorly monitored managers have an incentive to fight corporatetakeoversinsituationssuchasthis.

9. Wewouldexpectagencyproblemstobelesssevereinothercountries,primarilyduetotherelatively small percentage of individual ownership. Fewer individual owners should reduce the number of diverse opinions concerning corporate goals. The high percentage of institutional ownership might leadto a higher degree of agreement between owners and managers on decisions concerningrisky projects.Inaddition,institutionsmaybebetterabletoimplementeffectivemonitoringmechanisms onmanagersthancanindividualowners,basedontheinstitutions’deeperresourcesandexperiences withtheirownmanagement.TheincreaseininstitutionalownershipofstockintheUnitedStatesand thegrowingactivismoftheselargeshareholdergroupsmayleadtoareductioninagencyproblems forU.S.corporationsandamoreefficientmarketforcorporatecontrol.

10. Howmuchistoomuch?Whoisworthmore,LarryEllisonorTigerWoods?Thesimplestansweris thatthereisamarketforexecutivesjustasthereisforalltypesoflabor.Executivecompensationis thepricethatclearsthemarket.Thesameistrueforathletesandperformers.Havingsaidthat,one aspectofexecutivecompensationdeservescomment.Aprimaryreasonthatexecutivecompensation hasgrownsodramaticallyisthatcompanieshaveincreasinglymovedtostock-basedcompensation. Suchmovementisobviouslyconsistentwiththeattempttobetteralignstockholderandmanagement interests. Whenstockprices soar,management cleans up. It is sometimes argued that much of this reward is due to rising stock prices in general, not managerial performance. Perhaps in the future, executive compensation will be designed to reward only differential performance, i.e., stock price increasesinexcessofgeneralmarketincreases.

CHAPTER 2

FINANCIAL STATEMENTS AND CASH FLOW

Answers to Concept Questions

1. Liquiditymeasureshowquicklyandeasilyanassetcanbeconvertedtocashwithoutsignificantloss in value. It’s desirable for firms to have high liquidityso that theyhave a large factor of safetyin meeting short-term creditor demands. However, since liquidity also has an opportunity cost associated with it - namely that higher returns can generally be found by investing the cash into productiveassets -low liquiditylevels arealsodesirabletothefirm. It’s uptothefirm’s financial managementstafftofindareasonablecompromisebetweentheseopposingneeds

2. The recognition and matching principles in financial accounting call for revenues, and the costs associated with producing those revenues, to be “booked” when the revenue process is essentially complete, not necessarily when the cash is collected or bills are paid. Note that this way is not necessarilycorrect;it’sthewayaccountantshavechosentodoit.

3. Thebottom-linenumbershowsthechangeinthecashbalanceonthebalancesheet.Assuch,itisnot ausefulnumberforanalyzingacompany.

4. The major difference is the treatment of interest expense. The accounting statement of cash flows treatsinterestasanoperatingcashflow,whilethefinancialstatementofcashflowstreatsinterestas a financing cash flow. The logic of the accounting statement of cash flows is that since interest appearsontheincomestatement,whichshowstheoperationsfortheperiod,itisanoperatingcash flow. In reality, interest is a financing expense, which results from the company’s choice of debt/equity. We will havemore to sayabout this in alater chapter.When comparingthe two cash flow statements, the financial statement of cash flows is a more appropriate measure of the company’soperatingperformancebecauseofitstreatmentofinterest.

5. Market values can never be negative. Imagine a share of stock selling for –$20. This would mean that if you placedanorder for 100shares, you wouldget thestockalongwithacheckfor $2,000. How many shares do you want to buy? More generally, because of corporate and individual bankruptcylaws,networthforapersonoracorporationcannotbenegative,implyingthatliabilities cannotexceedassetsinmarketvalue.

6. For a successful company that is rapidly expanding, for example, capital outlays will be large, possiblyleadingtonegativecashflowfromassets.Ingeneral,whatmattersiswhetherthemoneyis spentproductively,notwhethercashflowfromassetsispositiveornegative.

7. It’sprobablynotagoodsignforanestablishedcompany,butitwouldbefairlyordinaryforastartup,soitdepends.

8. Forexample,ifacompanyweretobecomemoreefficientininventorymanagement,theamountof inventory needed would decline. The same might be true if it becomes better at collecting its receivables.Ingeneral,anythingthatleadstoadeclineinendingNWCrelativetobeginningwould have this effect. Negative net capital spendingwould mean more long-lived assets were liquidated thanpurchased.

9. Ifacompanyraisesmoremoneyfromsellingstockthanitpaysindividendsinaparticularperiod, itscashflowtostockholderswillbenegative.Ifacompanyborrowsmorethanitpaysininterestand principal,itscashflowtocreditorswillbenegative.

10. Theadjustmentsdiscussedwerepurelyaccountingchanges;theyhadnocashflowormarketvalue consequences.

Solutions to Questions and Problems

NOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.

Basic

1. Tofindowners’equity,wemustconstructabalancesheetasfollows:

Weknowthattotalliabilitiesandowners’equity(TL&OE)mustequaltotalassetsof$36,200.We also know that TL & OE is equal to current liabilities plus long-termdebt plus owners’ equity, so owners’equityis:

2. Theincomestatementforthecompanyis:

Oneequationfornetincomeis:

Netincome=Dividends+Additiontoretainedearnings

Rearranging,weget:

Additiontoretainedearnings=Netincome–Dividends Additiontoretainedearnings=$131,170–27,000 Additiontoretainedearnings=$104,170

3. Tofindthebookvalueofcurrentassets,weusetheNWCequation,thatis:

NWC=CA–CL

Rearrangingtosolveforcurrentassets,weget:

CA=NWC+CL CA=$320,000+1,075,000 CA=$1,395,000

So,thebookvaluebalancesheetwillbe:

Themarketvalueofcurrentassetsisgiven,sothemarketvaluebalancesheetis:

4. Taxes=.15($50,000)+.25($25,000)+.34($25,000)+.39($328,500–100,000) Taxes=$111,365

Theaveragetaxrateisthetotaltaxpaiddividedbytaxableincome,so:

Averagetaxrate=$111,365/$328,500

Averagetaxrate=.3390,or33.90%

Themarginaltaxrateisthetaxrateonthenext$1ofearnings,sothemarginaltaxrateis39percent.

5. TocalculateOCF,wefirstneedtheincomestatement:

6. Thenetcapitalspendingistheincreaseinfixedassets,plusdepreciation,so: Netcapitalspending=NFAend –NFAbeg +Depreciation Netcapitalspending=$4,450,000–3,750,000+395,000 Netcapitalspending=$1,095,000

7. The long-term debt account will increase by $9.5 million, the amount of the new long-term debt issue.Sincethecompanysold4millionnewsharesofstockwitha$1parvalue,thecommonstock account will increase by $4 million. The capital surplus account will increase by $22 million, the value of the new stock sold above its par value. Since the company had a net income of $15.3 million, and paid $3.1 million in dividends, the addition to retained earnings was $12.2 million, which will increase the accumulated retained earnings account. So, the new long-term debt and stockholders’equityportionofthebalancesheetwillbe:

8. Thecashflowtocreditorsistheinterestpaidminusthechangeinlong-termdebt,so:

Cashflowtocreditors=Interestpaid–Netnewborrowing

Cashflowtocreditors=$187,000–(LTDend –LTDbeg)

Cashflowtocreditors=$187,000–($2,530,000–2,400,000)

Cashflowtocreditors=$57,000

9. The cash flow to stockholders is the dividends paid minus any new equity purchased by shareholders,so:

Cashflowtostockholders=Dividendspaid–Netnewequity

Cashflowtostockholders=$270,000–[(Commonend +APISend)–(Commonbeg +APISbeg)]

Cashflowtostockholders=$270,000–[($595,000+6,180,000)–($540,000+5,600,000)]

Cashflowtostockholders=–$365,000

Note:APISistheadditionalpaid-insurplus.

10. We know that the cash flow from assets must be equal to the cash flow to creditors plus the cash flowtostockholders,so:

Cashflowfromassets=Cashflowtocreditors+Cashflowtostockholders

Cashflowfromassets=$57,000–365,000

Cashflowfromassets=–$308,000

Now, we can use the relationship between the cash flow from assets and the operating cash flow, change in net working capital, and capital spending to find the operating cash flow. Doing so, we find:

Cashflowfromassets =–$308,000=OCF–ChangeinNWC–Netcapitalspending –$308,000 =OCF–(–$65,000)–640,000

11. a. The accounting statement of cash flows explains the change in cash during the year. The accountingstatementofcashflowswillbe:

b. The change in net working capital is the ending net working capital minus the beginning net workingcapital,so:

ChangeinNWC =NWCend –NWCbeg =(CAend –CLend)–(CAbeg –CLbeg) =[($93+265)–301]–[($81+253)–295) =$57–39 =$18

c. Tofindthecashflowgeneratedbythefirm’sassets,weneedtheoperatingcashflow,andthe capital spending. Sincethere arenointerest payments, EBIT is thesame as EBT. Calculating eachofthese,wefind:

Next,wewillcalculatethecapitalspending,whichis:

Nowwecancalculatethecashflowgeneratedbythefirm’sassets,whichis:

Noticethattheaccountingstatementofcashflowsshowsapositivecashflow,butthefinancialcash flowsshowanegativecashflow.Thefinancialcashflowisabetternumberforanalyzingthefirm’s performance.

12. Toconstructthecashflowidentity,wewillbegincashflowfromassets.Cashflowfromassetsis:

Cashflowfromassets=OCF–ChangeinNWC–Netcapitalspending

So,theoperatingcashflowis:

OCF=EBIT+Depreciation–Taxes

OCF=$153,769+66,513–45,671

OCF=$174,611

Next,wewillcalculatethechangeinnetworkingcapitalwhichis:

ChangeinNWC=NWCend –NWCbeg

ChangeinNWC=(CAend –CLend)–(CAbeg –CLbeg)

ChangeinNWC=($66,284–32,978)–($57,026–29,342)

ChangeinNWC=$5,622

Now,wecancalculatethecapitalspending.Thecapitalspendingis:

Netcapitalspending=NFAend –NFAbeg +Depreciation

Netcapitalspending=$498,312–415,289+66,513

Netcapitalspending=$149,536

Now,wehavethecashflowfromassets,whichis:

Cashflowfromassets=OCF–ChangeinNWC–Netcapitalspending

Cashflowfromassets=$174,611–5,622–149,536

Cashflowfromassets=$19,453

CHAPTER 2 B-8

Thecompanygenerated$19,453fromitsassets.Thecashflowfromoperationswas$174,611,and thecompanyspent$5,622onnetworkingcapitaland$149,536infixedassets.

Thecashflowtocreditorsis:

Cashflowtocreditors=Interestpaid–Newlong-termdebt

Cashflowtocreditors=Interestpaid–(Long-termdebtend –Long-termdebtbeg)

Cashflowtocreditors=$23,280–($179,400–165,300)

Cashflowtocreditors=$9,180

Thecashflowtostockholdersisalittletrickierinthisproblem.First,weneedtocalculatethenew equity sold. The equity balance increased during the year. The only way to increase the equity balance is to add addition to retained earnings or sell equity. To calculatethe new equitysold, we canusethefollowingequation:

Newequity=Endingequity–Beginningequity–Additiontoretainedearnings

Newequity=$352,218–277,673–69,618

Newequity=$4,927

Whathappenedwastheequityaccountincreasedby$74,545.Ofthis increase,$69,618camefrom additiontoretainedearnings,sotheremaindermusthavebeenthesaleofnewequity.Nowwecan calculatethecashflowtostockholdersas:

Cashflowtostockholders=Dividendspaid–Netnewequity Cashflowtostockholders=$15,200–4,927

Cashflowtostockholders=$10,273

Thecompanypaid$9,180tocreditorsand$10,273toitsstockholders.

Finally,thecashflowidentityis:

Cashflowfromassets=Cashflowtocreditors +Cashflowtostockholders $19,453 = $4,927 + $10,273

Thecashflowidentitybalances,whichiswhatweexpect.

13. Withtheinformationprovided,thecashflowsfromthefirmarethecapitalspendingandthechange innetworkingcapital,so:

Andthecashflowstotheinvestorsofthefirmare:

Cash flows

firm

OCF=EBIT+Depreciation–Taxes

OCF=$274,200+87,000–81,795

OCF=$279,405

14. a. Theinterestexpenseforthecompanyistheamountofdebttimestheinterestrateonthedebt. So,theincomestatementforthecompanyis:

b. Andtheoperatingcashflowis:

15. TofindtheOCF,wefirstcalculatenetincome.

CHAPTER 2 B-10

a. Theoperatingcashflowwas:

OCF=EBIT+Depreciation–Taxes

OCF=$100,400+15,300–31,227

OCF=$84,473

b. Thecashflowtocreditorsistheinterestpaidminusanynetnewlong-termdebt,so:

CFC=Interest–NetnewLTD

CFC=$11,200–(–$8,500)

CFC=$19,700

Notethatthenet newlong-termdebtisnegativebecausethecompanyrepaidpartofitslongtermdebt.

c. Thecashflowtostockholdersisthedividendspaidminusanynetnewequity,or:

CFS=Dividends–Netnewequity

CFS=$18,100–6,000

CFS=$12,100

d. WeknowthatCFA=CFC+CFS,so:

CFA=$19,700+12,100

CFA=$31,800

CFAisalsoequalto(OCF–Netcapitalspending–ChangeinNWC).WealreadyknowOCF. Netcapitalspendingisequalto:

Netcapitalspending=IncreaseinNFA+Depreciation

Netcapitalspending=$33,000+15,300

Netcapitalspending=$48,300

Nowwecanuse:

CFA=OCF–Netcapitalspending–ChangeinNWC

$31,800=$84,473–48,300–ChangeinNWC

Solving for the change in NWC yields $4,373, meaning the company increased its NWC by $4,373.

16. Thesolutiontothisquestionworkstheincomestatementbackwards.Startingatthebottom:

Netincome=Dividends+Additiontoretainedearnings

Netincome=$5,200+8,100

Netincome=$13,300

Now,lookingattheincomestatement:

EBT–(EBT×Taxrate)=Netincome

RecognizethatEBT×Taxrateisthecalculationfortaxes.SolvingthisforEBTyields:

EBT=NI/(1–Taxrate)

EBT=$13,300/(1–.35)

EBT=$20,462

Nowwecancalculate:

EBIT=EBT+Interest

EBIT=$20,462+2,050

EBIT=$22,512

Thelaststepistouse:

EBIT=Sales–Costs–Depreciation

$22,512=$57,900–28,600–Depreciation

Depreciation=$6,788

17. Thebalancesheetforthecompanylookslikethis:

Totalliabilitiesandowners’equityis:

TL&OE=CL+LTD+Commonstock

Solvingthisequationforequitygivesus:

Commonstock=$5,027,000–2,084,000–2,585,000

Commonstock=$358,000

18. Themarket value of shareholders’ equitycannot benegative. A negative market valueinthis case wouldimplythatthecompanywouldpayyoutoownthestock.Themarketvalueofshareholders’ equitycanbestatedas:Shareholders’equity=Max[(TA–TL),0].So,ifTAis$15,100,equityis equalto$3,500,andifTAis$9,900,equityisequalto$0.Weshouldnoteherethatthebookvalue ofshareholders’equitycanbenegative.

CHAPTER 2 B-12

b. Eachfirmhasamarginaltaxrateof34percentonthenext$10,000oftaxableincome,despite theirdifferentaveragetaxrates,sobothfirmswillpayanadditional$3,400intaxes.

20. a. Theincomestatementforthecompanyis:

b. OCF=EBIT+Depreciation–Taxes OCF=$39,000+85,000–0

OCF=$124,000

c. Netincomewasnegativebecauseofthetaxdeductibilityofdepreciationandinterestexpense. However,theactualcashflowfromoperationswaspositivebecausedepreciationisanon-cash expenseandinterestisafinancingexpense,notanoperatingexpense.

21. Afirmcanstillpayoutdividendsifnetincomeisnegative;itjusthastobesurethereissufficient cashflowtomakethedividendpayments.

ChangeinNWC=Netcapitalspending=Netnewequity=0(Given)

Cashflowfromassets=OCF–ChangeinNWC–Netcapitalspending Cashflowfromassets=$124,000–0–0=$124,000

Cashflowtostockholders=Dividends–Netnewequity Cashflowtostockholders=$75,000–0=$75,000

Cashflowtocreditors=Cashflowfromassets–Cashflowtostockholders

Cashflowtocreditors=$124,000–75,000

Cashflowtocreditors=$49,000

Cashflowtocreditorsisalso:

Cashflowtocreditors=Interest–NetnewLTD

So: NetnewLTD=Interest–Cashflowtocreditors

NetnewLTD=$67,000–49,000

NetnewLTD=$18,000

=–$828

The cash flow from assets can be positive or negative, since it represents whether the firm raised funds or distributed funds ona net basis. In this problem, even though net income and OCFarepositive,thefirminvestedheavilyinbothfixedassetsandnetworkingcapital;ithad toraiseanet$828infundsfromitsstockholdersandcreditorstomaketheseinvestments.

Wecanalsocalculatethecashflowtostockholdersas: Cashflowtostockholders=Dividends–Netnewequity

Solvingfornetnewequity,weget:

b.

c.

CFA =OCF–ChangeinNWC–Netcapitalspending =$12,532–630–12,730

d.

Thefirmhadpositiveearningsinanaccountingsense(NI>0)andhadpositivecashflowfrom operations.Thefirminvested$630innewnetworkingcapitaland$12,730innewfixedassets. The firm had to raise $828 from its stakeholders to support this new investment. It accomplishedthisbyraising$4,153intheformofnewequity.Afterpayingout$2,275ofthis in the formof dividends toshareholders and $1,050 in the formof interest to creditors, $828 waslefttomeetthefirm’scashflowneedsforinvestment.

23. a. Totalassets2016 =$1,066+5,184=$6,250

Totalliabilities2016 =$475+2,880=$3,355

Owners’equity2016 =$6,250–3,355=$2,895

Totalassets2017 =$1,145+5,472=$6,617

Totalliabilities2017 =$518+3,090=$3,608

Owners’equity2017 =$6,617–3,608=$3,009

b. NWC2016 =CA2016 –CL2016 =$1,066–475=$591

NWC2017 =CA2017 –CL2017 =$1,145–518=$627

ChangeinNWC =NWC2017 –NWC2016 =$627–591=$36

c. Wecancalculatenetcapitalspendingas:

Netcapitalspending=Netfixedassets2017–Netfixedassets2016+Depreciation

Netcapitalspending=$5,472–5,184+1,339

Netcapitalspending=$1,627

So,thecompanyhadanetcapitalspendingcashflowof$1,627.Wealsoknowthatnetcapital spendingis:

Netcapitalspending =Fixedassetsbought–Fixedassetssold

$1,627 =$2,740–Fixedassetssold

Fixedassetssold =$2,740–1,627

Fixedassetssold =$1,113

To calculate the cash flow from assets, we must first calculate the operating cash flow. The operating cash flow is calculated as follows (you can also prepare a traditional income statement):

EBIT=Sales–Costs–Depreciation

EBIT=$15,690–3,739–1,339

EBIT=$10,612

EBT=EBIT–Interest

EBT=$10,612–562

EBT=$10,050

Taxes=EBT  .35

Taxes=$10,050  .35

Taxes=$3,518

24.

OCF=EBIT+Depreciation–Taxes

OCF=$10,612+1,339–3,518

OCF=$8,434

Cashflowfromassets=OCF–ChangeinNWC–Netcapitalspending Cashflowfromassets=$8,434–36–1,627

Cashflowfromassets=$6,771

d. Netnewborrowing=LTD2017 –LTD2016 Netnewborrowing=$3,090–2,880

Netnewborrowing=$210

Netnewborrowing=$210=Debtissued–Debtretired Debtretired=$634–210

Debtretired=$424

Cashflowtocreditors=Interest–NetnewLTD Cashflowtocreditors=$562–210

Cashflowtocreditors=$352

CHAPTER 2 B-16

25. OCF=EBIT+Depreciation–Taxes

OCF=$18,731+5,858–5,456.15

OCF=$19,132.85

ChangeinNWC=NWCend –NWCbeg =(CA–CL) end –(CA–CL) beg ChangeinNWC=($105,395–25,639)–($99,934–27,349) ChangeinNWC=$7,171

Netcapitalspending=NFAend –NFAbeg +Depreciation Netcapitalspending=$183,440–179,166+5,858

Netcapitalspending=$10,132

Cashflowfromassets=OCF–ChangeinNWC–Netcapitalspending Cashflowfromassets=$19,132.85–7,171–10,132

Cashflowfromassets=$1,829.85

Cashflowtocreditors=Interest–NetnewLTD

NetnewLTD=LTDend –LTDbeg

Cashflowtocreditors=$3,142–($83,476–71,550)

Cashflowtocreditors=–$8,784

Netnewequity=Commonstockend –Commonstockbeg Commonstock+Retainedearnings=Totalowners’equity

Netnewequity=(OE–RE) end –(OE–RE) beg

Netnewequity=OEend –OEbeg +REbeg –REend REend =REbeg +AdditionstoRE

Netnewequity=OEend –OEbeg +REbeg –(REbeg +AdditionstoRE2014)

Netnewequity=OEend –OEbeg –AdditionstoRE2014

Netnewequity=$179,720–180,201–4,664.85

Netnewequity=–$5,145.85

Cashflowtostockholders=Dividends–Netnewequity Cashflowtostockholders=$5,468–(–$5,145.85)

Cashflowtostockholders=$10,613.85