2) Which of the following statements is false?

A) The higher the firm's leverage, the more the firm exploits the tax advantage of debt, and the lower its WACC.

B) Corporate taxes lower the effective cost of debt financing, which translates into a reduction in the weighted average cost of capital.

C) Because the firm's free cash flow is computed without considering the firm's leverage, we account for the benefit of the interest tax shield by calculating the WACC using the before-tax cost of debt.

D) The reduction in the WACC increases with the amount of debt financing.

Answer:

Explanation: