Assume a Perfect M&M World

question 42

Multiple Choice

Assume a perfect M&M world. A firm is currently valued at $500 million, $200 million of which is debt (including non-financial debt) . It pays out $10 million in dividends and $20
Million to service its existing debt. It also raises another $60 million in debt and uses some of it
To repurchase $50 million of its common shares. What is the new value of the firm, and what is
Its new debt-equity ratio?

• A)Value = $510 million; Debt-equity = 40.0%
• B)Value = $480 million; Debt-equity = 50.0%
• C)Value = $360 million; Debt-equity = 55.6%
• D)Value = $480 million; Debt-equity = 100.0%

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Definitions:

Informal Network

Unofficial channels of communication within an organization, not defined by the organizational structure.

Grapevine

Informal channels of communication within an organization or community, often spreading rumors or unofficial information.

Formal Network

Formal network refers to the structured and officially designated channels of communication within an organization.

Ill-defined Problem

A problem that lacks clear parameters, goals, or solution paths, making it challenging to resolve.