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.

---

Definitions:

Consumer Markets

Markets consisting of individuals and households that purchase goods and services for personal consumption.

Product Usage

The manner in which a consumer uses a product, which can influence product development, marketing strategies, and customer satisfaction.

Market Segment

Refers to the division of the potential market into distinct groups of customers with common needs or characteristics.

Viability

The ability of a business, project, or idea to survive or to sustain itself and achieve long-term success.