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,r_D. 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.

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Quizplus · Accepted Answer

The statement that the FTE method is the preferred method with alternative leverage policies when we relax the assumption of a constant debt-equity ratio is false. In fact, the FTE method becomes more complex and difficult to use when the debt-equity ratio is not constant.

Which of the Following Statements Is FALSE