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.

You are analyzing two firms ( U 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