Which of the Following Statements Is False

question 55

Multiple Choice

Which of the following statements is false?

• A) The higher the firm's leverage, the more the firm exploits the tax advantage of debt, and the lower its WACC.
• B) Corporate taxes lower the effective cost of debt financing, which translates into a reduction in the weighted average cost of capital.
• C) Because the firm's free cash flow is computed without considering the firm's leverage, we account for the benefit of the interest tax shield by calculating the WACC using the before-tax cost of debt.
• D) The reduction in the WACC increases with the amount of debt financing.

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Definitions:

Prices Received

The amount of money that producers get for selling one unit of a good or service, often used in the context of agriculture or commodities.

Taxpayers

Individuals or entities that are required to make payments to a governmental authority, often based on income or property ownership.

Parity Concept

The idea that year after year the sale of a specific output of a farm product should enable a farmer to purchase a constant amount of nonagricultural goods and services.