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.

---

Definitions:

Eyes Widened

A physical reaction where the eyelids open more than usual, often in response to surprise, shock, or intense focus.

Mouth Rounded

Describes the shape and position of the lips when forming certain speech sounds, often contrasted with lip spreading or neutral positions.

Carroll Izard

An influential American psychologist known for his contributions to the study of emotions and the development of the Differential Emotions Theory.

Basic Emotions

Fundamental human emotions that are universally experienced, such as happiness, sadness, fear, and anger.