1. As the firm borrows at the low cost of capital for debt, its equity cost of capital rises, but the net effect is that the firm's WACC is unchanged.

True

False

2. The interest paid by a firm is tax-deductible and is referred to as interest tax shield. This is the additional amount that a firm would have paid in taxes if it did not have any debt in its capital structure.

True

False

3. In a world with taxes, interest tax shield tends to reduce a firm's weighted average cost of capital.

True

False