It Is Not Correct to Discount the Cash Flows of a Levered

question 75

Multiple Choice

It is not correct to discount the cash flows of a levered firm with the cost of equity of the unlevered firm because ________.

• A) leverage decreases the risk of equity of the firm
• B) leverage changes the unlevered cost of equity
• C) leverage increases the risk of the equity of the firm
• D) cost of debt decreases in this setting

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Definitions:

Collagen

A protein that is a major component of connective tissues in the body, providing structural support and strength.

Absorption

The process by which substances are taken up by a tissue, such as the absorption of nutrients by the intestines.

Vitamin C

A water-soluble vitamin found in various foods, necessary for the growth, development, and repair of all body tissues, and functioning as an antioxidant.

Cyanocobalamin

is a synthetic form of vitamin B12 used to treat and prevent B12 deficiency and related conditions.