Reference no: EM133227515

Question 1.

Which of the following statements is false?

a. in general, the gain to investors from the tax deductibility of interest payment is referred to as the interest tax shield.

b. the interest tax shield is the additional amount that a firm would have paid in taxes if it did not have leverage.

c. Because corporations pay taxes on their profits after interest payments are deducted, interest expenses reduce the amount of corporate tax firms must pay.

d. The total value of the unlevered firm exceeds the value of levered firm due to the present value of the tax savings from debt.

Question 2.

Which of the following is not one of the simplifying assumptions made for the WACC method?

a. market risk of the project is the same as the average market risk of the firm's investments.

b. the firm pays out all earnings as dividends.

c. corporate taxes are the only market imperfection.

d. the firm's debt-equity ratio is constant.