Which of the Following Statements Is FALSE

question 70

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:

Producer Surplus

The difference between what producers are willing to accept for a good or service and what they actually receive, due to higher market prices.

Specific Tariff

A fixed fee charged on a per unit basis for a good imported into a country.

Imported Good

A product or service that is brought into one country from another to be sold.

Consumer Surplus

The difference between the maximum price a consumer is willing to pay for a product and the actual price they do pay.