STR 581 Final Exam Answers - Part 2
What is included in the Study Guide?
- Final Exam Set 2 (30 Answers and Explanations)
- Comprehensive explanations for every answer
- Unlimited support from ACCNerd Tutors
- Updated April 22, 2017
- 100% Money Back Guarantee
Preview of Final Exam Answers
1. Which of the following financial statements is concerned with the company at a point in time?
Explanation: The balance sheet is always set to a specific data, usually the end of an accounting period.
2. A cost which remains constant per unit at various levels of activity is a:
Explanation: Fixed costs always remain the same, no matter what activity level at which a company operates.
3. M&M Proposition 1: 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 equity to 60 percent equity and use the debt proceeds to pay a special dividend to shareholders, how much debt should they use?
Explanation: Use NPV function on financial calculator to determine the amount of funding left over for dividends after the capital structure changes.