Final answer:
The incorrect statement among the options given concerning the MM extension with growth is that the total value of the firm is independent of the amount of debt it uses. In reality, according to MM Proposition I with tax, the leveraged firm's value includes the present value of the tax shields on debt, which suggests that financing choice does influence firm value.
Step-by-step explanation:
The statement concerning the Modigliani-Miller (MM) proposition with growth that is NOT CORRECT is (E): 'The total value of the firm is independent of the amount of debt it uses.' According to the MM proposition with taxes, known as the MM Proposition I with tax, the value of a leveraged firm is equal to the value of an unlevered firm plus the present value of the tax shields on debt. When growth is factored into MM's framework, it suggests that a growing tax shield (as in part A) is indeed more valuable than a constant one because the tax shield's value increases with the firm's growing earnings before interest and taxes (EBIT).
Regarding the levered cost of equity, it is generally higher when disbursements (DIS) are growing compared to when they are constant (part B) because as debt increases, equity becomes riskier, demanding a higher rate of return. The weighted average cost of capital (WACC), under this theory, would be lower for a given DIS as the firm employs more debt, due to the tax shield provided by the interest payments (contrary to what is suggested in part C). Finally, tax shields should indeed be discounted at the unlevered cost of equity because they are considered as safe as the firm's operations without leverage (which goes against the statement in part D).