What Will Be the Effect of Using Book Value of Debt

question 92

Multiple Choice

What will be the effect of using book value of debt in WACC decisions if interest rates have decreased substantially since a firm's long-term bonds were issued?

• A)the debt-to-value ratio will be overstated.
• B)the debt-to-value ratio will be understated.
• C)there will be no effect on WACC decisions.
• D)cannot be determined without knowing interest rates.

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Definitions:

Personal Property

Describes movable assets or belongings that are not permanently attached to or part of real estate; includes items such as furniture, vehicles, and electronics.

Promissory Estoppel

A rule of law that bars an individual from retracting a commitment made to another if the second party has justifiably depended on this pledge to their harm.

Justifiable Reliance

A principle in contract law that an individual can act based on the assurance or promise of another, assuming such dependence is reasonable and logical.

Contract Enforcement

The legal mechanisms and procedures used to ensure that the terms of a contract are fulfilled by the parties involved, or to seek remedies in cases of breach.