Question
Which of the following statements is false? A. In a market that has taxes as the only market imperfection, if two firms are identical but
Which of the following statements is false?
A. In a market that has taxes as the only market imperfection, if two firms are identical but differ only in their capital structure, then the value of the levered firm is higher than the value of the unlevered firm by the amount of interest tax shield
B. To compute the increase in the firm's total value associated with the interest tax shield, we need to forecast a firm's debt and its interest payments
C. Given a forecast of a future interest payment, we can determine the interest tax shield and compute its present value by discounting it at a rate that corresponds to its risk
D. There is an important tax advantage to the use of debt financing
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