Which of the Following Statements Is FALSE

question 46

Multiple Choice

Which of the following statements is FALSE?

• A)To determine the benefit of leverage for the value of the firm,we must compute the present value of the stream of future interest tax shields the firm will receive.
• B)Because the cash flows of the levered firm are equal to the sum of the cash flows from the unlevered firm plus the interest tax shield,by the Law of One Price the same must be true for the present values of these cash flows.
• C)By increasing the amount paid to debt holders through interest payments,the amount of the pre-tax cash flows that must be paid as taxes increases.
• D)When a firm uses debt,the interest tax shield provides a corporate tax benefit each year.

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Definitions:

Ego-ideal

A component of the psyche that represents an individual's standards of perfection and aspirations.

Reality Principle

A psychoanalytic concept where the ego seeks to satisfy the id’s desires in realistic and socially appropriate ways.

Primary-process Thought

A mode of thinking primarily in the unconscious mind involving the fulfillment of wishes and desires, often irrational and without logical coherence.

Secondary-process Thought

describes the rational, conscious thought processes rooted in logic, reality, and practicality, as distinguished from primary-process thought which is more about instinctual needs and desires.