Question

Godart Co. issued $4.5mn notes payable as a scrip dividend that matured in five years. At maturity, each shareholder of Godart's 3mn shares will receive payment of the note principal, plus interest. The annual interest rate was 10%. What amount should be paid to the stockholders at the end of the fifth year

Answer 1

$6,750,000

Step-by-step explanation:

Since it is stated in the question that the 3mn shares will be paid the principal and interest at maturity, and it is not stated the note is compounded, we apply the following simple calculation:

Amount to pay = $4,500,000 + [($4,500,000 × 10%) × 5 years]

= $4,500,000 + [$450,000 × 5 years]

= $4,500,000 + 2,250,000

Amount to pay = $6,750,000

Therefore, the amount should be paid to the stockholders at the end of the fifth year is $6,750,000.