Which Component Is More Likely to Be Biased If Book

question 113

Multiple Choice

Which component is more likely to be biased if book values are used in the calculation of WACC rather than market values?

• A) Debt.
• B) Preferred stock.
• C) Common stock.
• D) All categories should be equally biased.

---

Definitions:

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, represented by the owners' claims against the company's assets.

Stock Dividend

Shareholders receive additional shares as a payment from a corporation, rather than receiving cash.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often with dividends that are paid out before those of common stockholders.

Par Value

The nominal value of a bond or stock as declared by the issuer, which may not reflect its actual market value.