What Will Be the Effect of Using Book Value of Debt

question 63

Multiple Choice

What will be the effect of using 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:

Conservation

Within the realm of cognitive development, the realization that specific attributes of objects are constant, even when their shape or look alters.

Accommodation

The process of adapting cognitive schemas to incorporate new information.

Egocentrism

A developmental phase where an individual is unable to distinguish between their own perspective and that of others, often observed in children.

Insecure Attachment

A type of attachment characterized by anxiety or avoidance in relationships, often stemming from inconsistent caregiving in early life.