Which of the Following Statements Is False

question 41

Multiple Choice

Which of the following statements is false?

• A) The firm's unlevered cost of capital is equal to its pre-tax weighted average cost of capital - that is, using the pre-tax cost of debt, r_d , rather than its after-tax cost, r_d (1 - τ_c ).
• B) A firm's levered cost of capital is a weighted average of its equity and debt costs of capital.
• C) When the firm maintains a target leverage ratio, its future interest tax shields have similar risk to the project's cash flows, so they should be discounted at the project's unlevered cost of capital.
• D) The first step in the APV method is to calculate the value of free cash flows using the project's cost of capital if it were financed without leverage.

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Definitions:

SRS

Simple Random Sample; a method of sampling where every individual has an equal chance of being selected.

Relative Risk

A measure that compares the risk of a certain event occurring in two different groups.

Standard Error

A statistic that measures the accuracy with which a sample distribution represents a population by using standard deviation.

Sample Proportions

The fraction of sample observations that belong to a particular category, indicative of a characteristic within the sample.