Which of the Following Statements Is FALSE

question 18

Multiple Choice

Which of the following statements is FALSE?

• A)Given a forecast of future interest payments,we can determine the interest tax shield and compute its present value by discounting it at a rate that corresponds to its risk.
• B)The total value of the unlevered firm exceeds the value of the firm with leverage due to the present value of the tax savings from debt.
• C)To compute the increase in the firm's total value associated with the interest tax shield,we need to forecast a firm's debt and its interest payments.
• D)There is an important tax advantage to the use of debt financing.

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Definitions:

Common Stock

A form of corporate equity ownership, representing a claim on a portion of a company's profits and a right to vote on management issues.

Stock Split

An action a company takes to divide its existing stock into multiple shares to boost the liquidity of the shares.

Market Value

The price at which an asset would trade in a competitive auction setting, reflecting the current value assigned by the market.

Discount

The reduction applied to the nominal price of goods, services, or securities, often to accelerate sales or investment.