Which of the Following Statements Regarding the Adjusted Present Value

Multiple Choice

Which of the following statements regarding the adjusted present value method is FALSE?

A) The firm's unlevered cost of capital is equal to its pre-tax weighted average cost of capital-that is,using the pre-tax cost of debt,rd,rather than its after-tax cost,rd (1 - τc ) .
B) A firm's levered cost of capital is a weighted average of its equity and debt costs of capital.
C) When the firm maintains a target leverage ratio,its future interest tax shields have similar risk to the project's cash flows,so they should be discounted at the project's unlevered cost of capital.
D) The first step in the APV method is to calculate the value of free cash flows using the project's cost of capital if it were financed without leverage.