Which of the Following Statements Concerning the MM Extension with Growth

question 2

Multiple Choice

Which of the following statements concerning the MM extension with growth is NOT CORRECT?

• A) The value of a growing tax shield is greater than the value of a constant tax shield.
• B) For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM's original (with tax) assumptions.
• C) For a given D/S, the WACC is greater than the WACC under MM's original (with tax) assumptions.
• D) The total value of the firm is independent of the amount of debt it uses.
• E) The tax shields should be discounted at the unlevered cost of equity.

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Definitions:

Elephantiasis

Disease caused by a roundworm called the filarial worm.

Roundworms

A phylum of worms known as Nematoda, characterized by their elongated, cylindrical, and unsegmented bodies.

Pseudocoelom

Body cavity lying between the digestive tract and body wall that is incompletely lined by mesoderm.

Tube-Within-a-Tube

A design characteristic of the body plans of many animals, where the outer tube represents the body wall, and the inner tube represents the alimentary canal or gut.