Which of the Following Statements Is FALSE

question 1

Multiple Choice

Which of the following statements is FALSE?

• A)The actual cash flow that the investor will get to keep will be reduced by the amount of any tax payments.
• B)The equivalent after-tax interest rate is r(1 - τ).
• C)The right discount rate for a cash flow is the rate of return available in the market on other investments of comparable risk and term.
• D)To compensate for the risk that they will receive less than promised if the firm defaults,investors demand a lower interest rate than the rate on U.S.Treasuries.

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Definitions:

Common Share

A type of equity ownership in a corporation, entitling holders to vote on corporate matters and receive dividends.

Price-Earnings Ratio

A valuation metric for a company, calculated by dividing its current share price by its per-share earnings.

Net Income

The total profit of a business after all expenses, including taxes and operating costs, are subtracted from total revenues.

Weighted-Average Common Shares

The weighted-average common shares are calculated to represent the number of shares outstanding over a period, adjusted for changes such as stock splits.