Muffy's Muffins had a net income of $2,325. The firm retains 60 percent of its net income. During the year, the company sold common stock worth $295. What was the cash flow to shareholders?

To calculate the cash flow to shareholders, you need to consider both the dividends paid out to shareholders and the net new equity raised (which includes the money from selling common stock). Cash flow to shareholders can be calculated by subtracting net new equity raised from the dividends paid.

First, we need to calculate the dividends paid. Since Muffy's Muffins retains 60% of its net income, it means that the remaining 40% is paid out as dividends. Let's do this calculation:

Net income = $2,325 Percentage of net income retained = 60% Percentage of net income paid as dividends = 100% - 60% = 40%

Dividends paid = Net income x Percentage of net income paid as dividends Dividends paid = $2,325 x 40% = $930

Next, we know the company sold common stock worth $295. This is considered net new equity since it is the additional money from shareholders.

Finally, we can calculate the cash flow to shareholders by subtracting the net new equity raised from the dividends paid:

Cash flow to shareholders = Dividends paid - Net new equity raised Cash flow to shareholders = $930 - $295 = $635

So, the cash flow to shareholders for Muffy's Muffins is $635.