Which of the Following Statements Is FALSE

question 31

Multiple Choice

Which of the following statements is FALSE?

• A) Given a forecast of future interest payments, we can determine the interest tax shield and compute its present value by discounting it at a rate that corresponds to its risk.
• B) The total value of the unlevered firm exceeds the value of the firm with leverage due to the present value of the tax savings from debt.
• C) To compute the increase in the firm's total value associated with the interest tax shield, we need to forecast how a firm's debt-and therefore its interest payments.
• D) There is an important tax advantage to the use of debt financing.

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Definitions:

Domestic Partners

Two individuals who live together and share a domestic life but are not married to each other.

Tax Laws

The legal regulations governing the imposition, administration, and collection of taxes on individuals, corporations, and other entities by governmental organizations.

Limit Communications

The practice of restricting the flow of information within an organization or between individuals, often for the purpose of security or efficiency.

Defined-Contribution Plan

Retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account.