1) Which of the following statements is FALSE? 1. In the flow-to-equity valuation method, the project's free cash flows

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1 Which Of The Following Statements Is False 1 In The Flow To Equity Valuation Method The Project S Free Cash Flows 1 (387.02 KiB) Viewed 28 times

1) Which of the following statements is FALSE? 1. In the flow-to-equity valuation method, the project's free cash flows are discounted using the equity cost of capital. 2. With a constant interest coverage policy, the value of the interest tax shield is proportional to the project's levered value. 3. A target leverage ratio means that the firm adjusts its debt proportionally to the project's market value. 4. When a company's borrowing to finance a project is set according to a predetermined schedule, the interest tax shields on this debt should be discounted using the unlevered cost of capital. A. Statement 1. B. Statement 2. C. Statements 2 and 4. D. Statements 1 and 2. 2) Suppose you want to calculate the present value of the final-year's interest tax shield for a project that has a life of six years. The following formula PV (ITS) = ITS6/(1+RD)6 should be used when: A. the debt associated with the interest tax shield is permanent. B. the debt associated with the interest tax shield is predetermined. C. the debt is adjusted continuously to maintain a target leverage ratio. D. the debt is adjusted periodically to maintain a target leverage ratio. 3) Which of the following statements is FALSE? 1. Real options to wait can be less valuable in high-tech industries with rapid technological changes and first mover advantages. 2. When an independent project has no option to delay, we should usually invest in it when its NPV is greater than zero. 3. In the real option context, the forgone dividends correspond to the additional cost of the investment that we incur by delaying the investment. 4. Instead of raising the bar on the NPV, the hurdle rate rule reduces the discount rate. A. Statement 1. B. Statements 2 and 4. C. Statements 3 and 4. D. Statements 1 and 3.