Dynamo Corp

question 25

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, how much of the special dividend do you receive, and how much do you receive in regular dividends per annum after the restructuring as per the M&M Proposition 1?

• A) $15 and $60
• B) $60 and $15
• C) $10.80 and $22.50
• D) $22.50 and $10.80

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Definitions:

Number Of Intermediaries

Refers to the count of intermediate agents or agencies between the producer and the consumer in the distribution channel of goods or services.

Channel Length

The total number of intermediary levels through which a product passes before reaching the final consumer.

Producer And Buyer

The parties involved in a transaction where the producer creates or offers goods and services, and the buyer provides compensation to acquire them.

Direct-To-Home

A distribution model where products or services are delivered directly to the consumer's home without intermediary retailers.