Which of the Following Statements Is False

question 15

Multiple Choice

Which of the following statements is false?

• A) The actual cash flow that the investor will get to keep will be reduced by the amount of any tax payments.
• B) The equivalent after-tax interest rate is r(1 - τ).
• C) The right discount rate for a cash flow is the rate of return available in the market on other investments of comparable risk and term.
• D) To compensate for the risk that they will receive less if the firm defaults, investors demand a lower interest rate than the rate on U.S. Treasuries.

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Definitions:

Chapter 13

refers to a part of the U.S. Bankruptcy Code that enables individuals with a regular income to develop a plan to repay all or part of their debts.

Chapter 7

A provision of the bankruptcy code that provides for "liquidation," whereby a debtor's assets are distributed to creditors.

Repayment Plan

A structured schedule agreed upon for paying back borrowed money.

Security Interest

An official right or charge on property pledged as security, often for the purpose of loan repayment assurance.