Which of the following statements is FALSE? A. With a constant interest coverage policy, the value of the interest tax shield is proportional to the project's unlevered value. O B. When the firm keeps its interest payments to a target fraction of its FCF, we say it has a constant interest coverage ratio. Oc. When debt levels are set according to a fixed schedule, we can discount the predetermined interest tax shields using the debt cost of capital, rD. OD. When we relax the assumption of a constant debt - equity ratio, the FTE method is relatively straightforward to use and is therefore the preferred method with alternative leverage policies.
Which of the following statements is FALSE? A. With a constant interest coverage policy, the value of the interest tax shield is proportional to the project's unlevered value. O B. When the firm keeps its interest payments to a target fraction of its FCF, we say it has a constant interest coverage ratio. Oc. When debt levels are set according to a fixed schedule, we can discount the predetermined interest tax shields using the debt cost of capital, rD. OD. When we relax the assumption of a constant debt - equity ratio, the FTE method is relatively straightforward to use and is therefore the preferred method with alternative leverage policies.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Which of the following statements is FALSE?
A. With a constant interest coverage policy, the value of the interest tax shield is proportional to the project's unievered value.
B. When the firm keeps its interest payments to a target fraction of its FCF, we say it has a constant interest coverage ratio.
Oc. When debt levels are set according to a fixed schedule, we can discount the predetermined interest tax shields using the
debt cost of capital, rD.
OD. When we relax the assumption of a constant debt - equity ratio, the FTE method is relatively straightforward to use and is
therefore the preferred method with alternative leverage policies.
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