We Discount the Cash Flows of a Levered Firm with a Different

question 36

Multiple Choice

We discount the cash flows of a levered firm with a different discount rate than 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 equity of the firm.
• D)cost of debt decreases in this setting.
• E)default risk increases.

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