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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