Which of the Following Statements Is FALSE

question 70

Multiple Choice

Which of the following statements is FALSE?

• A)The higher the firm's leverage,the more the firm exploits the tax advantage of debt,and the lower its WACC.
• B)Corporate taxes lower the effective cost of debt financing,which translates into a reduction in the weighted average cost of capital.
• C)Because the firm's free cash flow is computed without considering the firm's leverage,we account for the benefit of the interest tax shield by calculating the WACC using the before-tax cost of debt.
• D)The reduction in the WACC increases with the amount of debt financing.

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Definitions:

Age of Majority

The legally recognized age at which an individual is considered an adult and responsible for their actions.

Exculpatory Clause

A contract provision that relieves one party from liability for wrongdoing or negligence.

Covenant Not to Compete

A legal agreement in which one party agrees not to enter into or start a similar profession or trade in competition against another party.

Tort of Defamation

A civil wrong that involves making false statements about someone that harm their reputation.