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Question
Which of the following statements concerning the compressed adjusted present value (APV) model is NOT CORRECT?a. The value of a growing tax shield is greater than the value of a constant tax shield.
b. For a given D/S, the levered cost of equity is greater in the compressed APV model than the levered cost of equity under MM's original (with tax) assumptions.
c. For a given D/S, the WACC is greater in the compressed APV model than the WACC under MM's original (with tax) assumptions.
d. The total value of the firm increases with the amount of debt.
e. The tax shields should be discounted at the cost of debt.
Answer
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