An Argument for Using the Book Value of the Equity

question 1

Multiple Choice

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

• A)many of the bond covenants use ratios based on the book value of equity.
• B)it is less variable than the market value of the equity.
• C)it is a measure of the true economic value of a firm.
• D)Both A and B are arguments supporting the use of the book value of the equity.

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