The Unlevered Cost of Equity Is Often Viewed as the Appropriate

question 54

True/False

The unlevered cost of equity is often viewed as the appropriate discount rate rather than the cost of debt or a risk-free rate because tax savings are subject to risk,since the firm may default on its debt or be unable to utilize the tax savings due to continuing operating losses.

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Definitions:

Prisoner's Dilemma

A scenario in game theory in which two individuals acting in their own self-interest do not produce the optimal outcome for either party.

Ultimatum Game

A game in economic experiments where two players decide on how to divide a sum of money; the proposer suggests a division and the responder can either accept or reject it.

Entitativity

The degree to which a collection of people feels like a cohesive group.

Social Identity

The part of an individual's self-concept derived from perceived membership in social groups.