Which of the Following Statements Is FALSE

question 62

Multiple Choice

Which of the following statements is FALSE?

• A)The firm's unlevered cost of capital is equal to its pre-tax weighted average cost of capital - that is,using the pre-tax cost of debt,r_d,rather than its after-tax cost,r_d (1 - τ_c ).
• B)A firm's levered cost of capital is a weighted average of its equity and debt costs of capital.
• C)When the firm maintains a target leverage ratio,its future interest tax shields have similar risk to the project's cash flows,so they should be discounted at the project's unlevered cost of capital.
• D)The first step in the APV method is to calculate the value of free cash flows using the project's cost of capital if it were financed without leverage.

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Definitions:

Coupon Bond

A bond that pays the holder a fixed interest payment (coupon) at regular intervals until the maturity date, when the principal and final interest payment are repaid.

Yield To Maturity

The total return anticipated on a bond if the bond is held until its maturity date, taking into account its current market price, face value, interest rate, and time to maturity.

Par Value

Is the face value of a bond or stock, representing the amount that will be returned to the investor at maturity or the value at which the stock is noted on the balance sheet.