Which of the following statements is FALSE?

A. Given a forecast of future interest payments, we can determine the interest tax shield and compute its present value by discounting it at a rate that corresponds to its risk.
B. The total value of the unlevered firm exceeds the value of the firm with leverage due to the present value of the tax savings from debt.
C. To compute the increase in the firm’s total value associated with the interest tax shield, we need to forecast a firm’s debt and its interest payments.
D. There is an important tax advantage to the use of debt financing.

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How does debt affect the value of the firm?
A. Debt generates tax shield, which would increase the value of the firm
B. Debt can cause agency problems, which might potentially hurt the value of the firm
C. Too much debt increases the probability of bankruptcy, which would decrease the value of the firm
D. All of the above
What is correct regarding optimal life-cycle portfolio choices according to Coco et al. (2005)?
A One should invest in a 100% bond portfolio after retirement
B. One should always invest some portion of the portfolio in stock ·
C. The portion invested in stock increases from age 20 to 65
D. The percentage invested in stock should be 100 – age


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