Corporate fiNancial Officers Prefer to Use Book Values When Measuring

question 33

Multiple Choice

Corporate financial officers prefer to use book values when measuring debt ratios because:

• A)book values are more stable than market values.
• B)debt covenant restriction are usually expressed in book value terms.
• C)rating agencies measure debt ratios in book values terms.
• D)All of the above.
• E)None of the above.

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Definitions:

Minimum Price

The lowest price at which a good or service is permitted to be sold, often set by regulation.

Long-Run Supply Curve

A graphical representation showing the relationship between market price and quantity supplied over a long period, where all inputs can be adjusted.

Purely Competitive

A market structure characterized by many buyers and sellers, all selling identical products, with no single buyer or seller able to influence the market price.

Diminishing Marginal Returns

A principle stating that if one factor of production is increased while other factors are held constant, the additional output generated will eventually decrease, related to diminishing marginal utility but applied to production.