What Will Be the Effect of Using the Book Value

question 2

Multiple Choice

What will be the effect of using the 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) It cannot be determined without knowing interest rates.

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Definitions:

Multiple Correlation

A statistical measure that describes the extent of association between more than two variables.

Researchers

Individuals who conduct detailed investigations in order to discover new information or reach new understandings.

Significant Results

Results obtained from statistical analysis that are unlikely to have occurred due to chance alone, indicating a meaningful difference or relationship.

Relationship Between Variables

The association or correlation existing between two or more variables in research, indicating how one variable changes in relation to another.