Corporate Finance Fin 571 - 42436

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  • Due on: Fri 07 Feb, 2014 (07:51pm)
  • Asked on: Fri 07 Feb, 2014
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A. 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.

How much are your cash flows today?

B. You are provided the following working capital information for the Ridge Company:

Ridge Company







Accounts receivable


Accounts payable




Net sales


Cost of goods sold


Operating cycle: What is the operating cycle for Ridge Company?

C. Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an order is $65 and it costs $85 per year to carry the alarm clock in inventory, use the EOQ formula to calculate the optimal order size.

D. M&M Proposition 2: Melba's Toast has a capital structure with 30% debt and 70% equity. Its pretax cost of debt is 6%, and its cost of equity is 10%. The firm's marginal corporate income tax rate is 35%. What is the appropriate WACC?

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