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STR 581, STR/581, Capstone - Week 4 Exam Solutions Latest - 39/39 correct

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1
Horizontal analysis is also known as:
trend analysis
vertical analysis
common size analysis
linear analysis
2
An unrealistic budget is more likely to result when it:
has been developed in a top down fashion.
is developed with performance appraisal usages in mind.

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has been developed in a bottom up fashion.
has been developed by all levels of management.
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?
$375
$225
$600
$321
4
Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

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harder to transfer ownership
most common form of organization
reduced legal liability for investors
lower taxes
5
Ajax Corp. is expecting the following cash flows - $79,000, $112,000, $164,000, $84,000, and $242,000 –
over the next five years. If the company’s opportunity cost is 15 percent, what is the present value of
these cash flows? (Round to the nearest dollar.)
$429,560
$414,322
$480,906

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