There Was an Upward Trend in the Ratio of the Book

question 29

Multiple Choice

There was an upward trend in the ratio of the book value of debt to the book value of debt and equity throughout the 1990s. Some of this was due to the repurchasing of stock. The market value ratio of debt to debt and equity exhibited no upward trend. This can be explained by:

• A) the change in the accounting rules of the period.
• B) the difference between tax accounting and accounting for financial accounting purposes.
• C) a large increase in the market value of equity that was greater than the increase in debt.
• D) All of these.
• E) None of these.

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Comparative Advantage

The ability of an entity to produce goods or services at a lower opportunity cost than others, leading to more efficient trade.

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