If the Pro Forma Balance Sheet Shows That Total Assets

question 66

Multiple Choice

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of.75 then:

• A)Debt must increase by $300,000
• B)Equity must increase by the full $400,000
• C)Debt must increase by $171,429
• D)Equity must increase by $100,000

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Definitions:

Gordon Model

A method to determine the value of a stock by considering expected dividends, growth rate of these dividends, and the required rate of return.

Stock Pricing Models

Theoretical models used to determine the fair value of a stock based on future dividends, free cash flow, or other attributes of the company.

Gordon Model

A dividend discount model that values a stock by assuming a constant growth rate in dividends and discounting them back to their present value.

Market Return

The total return on an investment, including dividends and capital gains, as opposed to the annual return.