1. Valuation issues. Explain why each of the following statements is generally incorrect:

a. Price-earnings ratios should increase when the yield on government securities rises.

b. A companys discounted cash flow value is usually dominated by the magnitude of its expected cash flow stream during the future five to ten years, whereas its terminal value usually has a negligible effect on its DCF value.

c. The use of high debt ratios to finance leveraged buyouts is essentially a device to capture the tax savings generated by the deductibility of interest expenses.