It Is Not Correct to Discount the Cash Flows of a Levered

question 75

Multiple Choice

It is not correct to discount the cash flows of a levered firm with 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 the equity of the firm
• D) cost of debt decreases in this setting

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Definitions:

Journalize

The process of recording business transactions in the journal of an accounting system.

Petty Cash Fund

A modest sum of money maintained for covering small or unforeseen costs.

Journal Entries

Recorded transactions in the accounting records of a business that demonstrate the financial activities and their impacts.

Postage

The cost associated with sending letters and parcels through the postal system, typically paid by purchasing stamps or printed labels.