An Argument for Using the Market Value of the Equity

question 5

Multiple Choice

An argument for using the market value of the equity when calculating leverage ratios is that

• A)it is more stable than the book value of the equity, which is easily manipulated.
• B)the market value of the debt is typically used in these ratios, so to be consistent the market value of the equity should be used.
• C)it is a measure of the economic value of a firm.
• D)All of the above are reasons that the market value of the equity should be used.

---

Definitions:

Potential Risk

A possibility of harm, loss, or any negative occurrence that may or may not happen in the future.

Least Safe

The condition or status of having the highest potential for danger or risk among compared alternatives.

Unbalanced Value Flow

A situation where the trade or transaction between parties creates disproportionate value, benefiting one party more than the other.

Audio Recording Equipment

Technology and devices specifically designed for capturing and storing sound, ranging from basic microphones to complex digital recording systems.