Dynamo Corp

question 76

Multiple Choice

Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock. If Dynamo wishes to change its capital structure from 75 percent to 60 percent equity, what transaction do you need to take in order to undo the restructuring according to M&M Proposition 1?

• A) Sell $22.50 of stock
• B) Sell $10.80 worth of stock
• C) Buy $22.50 worth of debt
• D) Buy $10.80 worth of debt

---

Definitions:

Economic Well-Being

A condition that includes the financial security, quality of life, and ability of individuals or communities to meet their basic needs and enjoy a certain standard of living.

Emotional Health

The aspect of health that pertains to managing and understanding emotions, maintaining emotional equilibrium, and recognizing emotional responses.

Split Custody

The children are divided between the parents either by sex or the children’s choice.

Joint Custody

Children divide their time between their parents, who share decisions about the children’s upbringing (sometimes called dual residence custody).