Questions
Questions

Corporate Finance (WI000091) (11.08.2025) Lecture Hall Exam

Single choice

One valuation method is the Adjusted Present Value (APV) method. Which statement regarding the APV method is most likely wrong?

Options
A.A. Assuming a constant debt level, the tax shield has the same risk as debt
B.B. The APV method splits the entity value of a debt financed firm into the value of a unlevered firm and the present value of the tax shield
C.C. The APV method is appropriate if the amount of debt is not constant over time.
D.D. The tax shield is considered in the unlevered cash flows.
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Step-by-Step Analysis
The question asks which statement about the Adjusted Present Value (APV) method is most likely wrong, so we will examine each option to assess its accuracy. Option A: 'Assuming a constant debt level, the tax shield has the same risk as debt.' This aligns with the APV framework in which the tax shield is often treated as a separate cash flow whose risk mirrors the risk of the financing generating that......Login to view full explanation

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