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:

Z-scores

A measure that describes a value's relationship to the mean of a group of values, expressed in units of standard deviation.

Standard Normal Distribution

A probability distribution that has a mean of 0 and a standard deviation of 1, representing a standardized version of the normal distribution.

Less Than

A mathematical expression indicating that one quantity is smaller than another.