Each of the following statements is false or at least misleading. Explain why in each case.

a. “A capital investment opportunity offering a 10% DCF rate of return is an attractive project if it can be 100% debt-financed at an 8% interest rate.”

b. “The more debt the firm issues, the higher the interest rate it must pay. That is one important reason why firms should operate at conservative debt levels.”

AppendixLO1