Which of the following statements is false?
A) To determine the project's debt capacity for the interest tax shield calculation, we need to know the value of the project.
B) To compute the present value of the interest tax shield, we need to determine the appropriate cost of capital.
C) Because we don't value the tax shield separately, with the APV method we need to include the benefit of the tax shield in the discount rate as we do in the WACC method.
D) A target leverage ratio means that the firm adjusts its debt proportionally to the project's value or its cash flows.

Question

Quizplus · Accepted Answer

The statement C is false because the Adjusted Present Value (APV) method actually values the tax shield separately from the project's value. Unlike the Weighted Average Cost of Capital (WACC) method, which incorporates the tax shield into the discount rate, the APV method calculates the value of the project without debt and then adds the present value of the tax shield and any other side effects.

Which of the Following Statements Is False