1. Which of the following statements is FALSE?

1. The firm's unlevered cost of capital is equal to its pre-tax weighted average cost of capital; using the pre-tax cost of debt, r_d, rather than its after-tax cost, r_d (1 - _c ).
2. A firm's levered cost of capital is a weighted average of its equity and debt costs of capital.
3. When the firm maintains a target leverage ratio, its future interest tax shields have similar risk to the project's cash flows, so they should be discounted at the project's unlevered cost of capital.