If Market Values of Equity Exceed Book Values of Equity

question 118

Multiple Choice

If market values of equity exceed book values of equity, then:

• A)Equity has been depreciated too rapidly
• B)The firm uses accrual-based accounting
• C)Profit potential is expected to be attractive
• D)The firm is holding too much cash

Understand how a firm’s business risk and financial policy impact its equity beta.

Recognize the effects of operating at a target capital structure on the firm's value and WACC.

Identify the connection between operating characteristics and capital structure decisions.

Grasp how the nature of assets impacts the optimal level of debt.

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