Which of the following statements is FALSE?
A) The actual cash flow that the investor will get to keep will be reduced by the amount of any tax payments.
B) The equivalent after-tax interest rate is r(1 - τ).
C) The right discount rate for a cash flow is the rate of return available in the market on other investments of comparable risk and term.
D) To compensate for the risk that they will receive less if the firm defaults, investors demand a lower interest rate than the rate on U.S. Treasuries.

Question

Quizplus · Accepted Answer

The statement "To compensate for the risk that they will receive less if the firm defaults, investors demand a lower interest rate than the rate on U.S. Treasuries" is false. Investors actually demand a higher interest rate to compensate for the higher risk of default. As such, statement D is the only false statement among the given options.

Which of the Following Statements Is FALSE