Which of the Following Statements Is FALSE

question 62

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.