If Market Values of Equity Exceed Book Values of Equity,then

question 24

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.

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Definitions:

Acid-Test Ratio

A stringent indicator of a company's liquidity, calculated by dividing its liquid assets (excluding inventory) by its current liabilities.

Balance Sheet

A financial report detailing a firm's assets, liabilities, and equity of shareholders at a particular moment.

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, used to evaluate a company's financial health and potential growth.

Market Price

The current price at which an asset or service can be bought or sold in a marketplace.