Question

Motivation to Pay Dividends

Karla Heyne is the sole shareholder of XYZ Corporation. XYZ Corporation owned a parcel of vacant land that Karla thought would be an ideal location to build her personal residence. Consequently, XYZ distributed the land to Karla. Karla had the land appraised to determine the income both she and XYZ would recognize on the distribution. Because the first appraisal came in higher than she expected, she paid for a second appraisal from a different appraiser. The second appraisal was quite a bit lower so Karla used the second appraisal to determine the income she and XYZ recognized on the distribution. What do you think of Karla’s approach to determining the value of the land?

Answer 1

Karla is obviously interested in a low income for the distribution of the land and that is the reason she approached another appraiser after getting a higher value by the first appraiser. Hence, her approach is correct because she wants to build her personal residence on the land and the cost she invested in appraisals worth it.

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