All of the Following Statements Are Correct Except

question 127

Multiple Choice

All of the following statements are correct except:

• A) Relevant cash flows are incremental after-tax cash flows, which must be discounted using an incremental after-tax cost of capital.
• B) The firm's relevant cost of capital is computed from before-tax financing costs.
• C) A project's incremental cash flows must be discounted at a cost of capital that represents the incremental or marginal cost to the firm of financing the project, that is, the cost of raising one additional dollar of capital.
• D) In estimating the cost of capital, the firm's analysts need to evaluate investors' expected returns under likely market conditions and then use these expected returns to compute the firm's marginal future cost of raising funds.