Which of the Following Statements Is False

question 6

Multiple Choice

Which of the following statements is false?

• A) When we relax the assumption of a constant debt-equity ratio, the FTE method is relatively straightforward to use and is therefore the preferred method with alternative leverage policies.
• B) When debt levels are set according to a fixed schedule, we can discount the predetermined interest tax shields using the debt cost of capital, r_D.
• C) With a constant interest coverage policy, the value of the interest tax shield is proportional to the project's unlevered value.
• D) When the firm keeps its interest payments to a target fraction of its FCF, we say it has a constant interest coverage ratio.

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Definitions:

Selling And Administrative Expenses

Expenses related to the selling of products and the management of the business, not directly tied to manufacturing.

Noncurrent Assets

Noncurrent assets are long-term assets not expected to be converted into cash or used up within one year, such as property, plant, and equipment.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing the ownership stake of shareholders.

Working Capital

The difference between a company's current assets and current liabilities, indicating the amount of liquid assets available to run its operations.