Dynamo Corp

question 44

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. How much does Dynamo currently pay as interest, and how much will it have to pay after the restructuring in the prior problem, assuming that the cost of debt is constant?

• A) $42 and $26.25
• B) $26.25 and $42
• C) $160 and $37.50
• D) $37.50 and $60

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Definitions:

Color-Blind

The inability or decreased ability to see color or distinguish between colors, due to genetic or acquired conditions affecting color perception.

Cones

Cells in the retina known as photoreceptors are crucial for seeing colors and operate optimally under well-lit conditions.

Rods

Photoreceptor cells in the retina of the eye that are highly sensitive to low levels of light and are primarily responsible for night vision.

Fovea

A tiny pit located in the macula of the retina that provides the clearest vision of all by having a high concentration of cones and no rods.