Which of the Following Statements Is False

question 8

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 pretax 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:

Dividend Payout Ratio

A financial metric that shows the percentage of earnings a company distributes to its shareholders in the form of dividends.

Profit Margin

A financial metric indicating the percentage of revenue that exceeds the costs associated with making and selling the product, calculated as net income divided by revenue.

Projected Addition

Projected addition refers to the estimated increase or expansion in a company's assets, revenues, or capabilities, based on future plans or investments.

Debt-Equity Ratio

An indicator that specifies the proportional role of shareholders' equity and debt in asset funding.