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:

Grandiose Plans

Highly ambitious or idealistic plans that may be unrealistic or difficult to achieve.

Unrestrained Exuberance

An overflow of high spirits or unchecked enthusiasm, potentially leading to lack of self-control or caution.

Mania

A mental health condition characterized by excessively elevated mood, energy levels, and, in some cases, delusions or hallucinations, often associated with bipolar disorder.

Antisocial Personality

A personality disorder characterized by a long-term pattern of disregard for, or violation of, the rights of others, often manifesting in criminal behavior.