You are analyzing two firms and

L

that are identical except that firm

U

uses only equity to finance its assets and firm L uses

50%

debt and

50%

equity to finance its assets. Which of the following statements about the operating cash flows of firms

U

and

L

are true:\ Multiple Choice\ Firm

L

and Firm

U

will have identical operating cash flows.\ Firm

L

will have higher operating cash flow than firm

U

due to the tax shield of debt.\ Operating cash flows are unaffected by the choice of leverage for a firm since the calculation of operating cash flow starts with EBIT.