Dynamo Company Produces Annual Cash Flows of $150 and Is

question 47

Multiple Choice

Dynamo Company produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 per cent equity and 25 per cent debt. Your analysis tells you that the appropriate discount rates are 10 per cent for the cash flows, and 7 per cent for the debt. You currently own 10 per cent of the shares. M&M Proposition 1: What are the interest payments that you receive after you undo the restructuring, and what are your total cash flows?

• A) $1.57, $12.38
• B) $23.55, $75
• C) $1.13, $12.38
• D) $1.24, $11.25

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