Why Do We Use Market-Value Weights Instead of Book-Value Weights

question 7

Multiple Choice

Why do we use market-value weights instead of book-value weights?

• A) Because firms often "window-dress" their financial statements.
• B) Because we are interested in determining what the cost of financing the firm's assets would be given today's market situation and the component costs the firm currently faces, not what the historical prices would have been.
• C) Because it is required in the Sarbanes-Oxley regulations.
• D) None of these choices are correct.

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Definitions:

Biweekly Salaries

Salary payments made to employees every two weeks, often resulting in 26 pay periods in a year.

Fiscal Period

A specific time frame, usually a year, used for accounting purposes and preparation of financial statements.

Payroll

The total amount paid to employees for a certain period.

Salary Expense

The total amount paid to employees as salaries over a period of time, representing a liability for services received by the business.