Which of the Following Statements Concerning the Compressed Adjusted Present

question 5

Multiple Choice

Which of the following statements concerning the compressed adjusted present value (APV) model 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 using the compressed APV model is greater than the levered cost of equity under MM's original (with tax) assumptions.
• C) For a given D/S, the WACC in the compressed APV model is less than the WACC under MM's original (with tax) assumptions.
• D) The total value of the firm increases with the amount of debt.
• E) The tax shields should be discounted at the unlevered cost of equity.

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Definitions:

Re-entry

The act of a landlord to move into possession of leased property.

Re-enter

The act of going back into a place or area that one has previously left.

Payment of Rent

The periodic payment made by a tenant to a landlord in exchange for the use of property, as specified in a lease agreement.

Statute of Frauds

A legal principle that requires certain types of contracts to be written and signed in order to be enforceable.