Which of the following statements is FALSE?
A)When we relax the assumption of a constant debt-equity ratio,the FTE method is relatively straightforward to use and is therefore the preferred method with alternative leverage policies.
B)When debt levels are set according to a fixed schedule,we can discount the predetermined interest tax shields using the debt cost of capital,rD.
C)With a constant interest coverage policy,the value of the interest tax shield is proportional to the project's unlevered value.
D)When the firm keeps its interest payments to a target fraction of its FCF,we say it has a constant interest coverage ratio.

Question

Quizplus · Accepted Answer

The statement "the FTE method is relatively straightforward to use and is therefore the preferred method with alternative leverage policies" is false. The FTE method becomes more complicated and less preferred when assumptions of a constant debt-equity ratio are relaxed. Other methods, such as the APV method, may be preferred in this case.

Which of the Following Statements Is FALSE