Which of the Following Statements Concerning the Compressed Adjusted Present

question 49

Multiple Choice

Which of the following statements concerning the compressed adjusted present value (APV) model is NOT CORRECT?

• A) the value of a growing tax shield is greater than the value of a constant tax shield.
• B) for a given d/s, the levered cost of equity in the compressed apv model is greater than the levered cost of equity under mm's original (with tax) assumptions.
• C) for a given d/s, the wacc in the compressed apv model is greater than the wacc under mm's original (with tax) assumptions.
• D) the total value of the firm is independent of the amount of debt it uses.
• E) the tax shields should be discounted at the unlevered cost of equity.

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Definitions:

Accounts Receivable

Accounts receivable refers to the money owed to a company by its customers for goods or services delivered but not yet paid for, representing a line of credit from the company to the customer.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term health and efficiency of its operations.

Spontaneous Financing

Financing that arises naturally from the operations of a company, such as trade credit that increases as sales grow, without requiring explicit negotiation or arrangements.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity and operational efficiency.