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.

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Definitions:

Nonrivalry

A characteristic of certain goods where one person's consumption does not reduce availability to others, often associated with public goods.

Negative Externalities

Costs suffered by a third party as a result of an economic transaction which the parties directly involved in the transaction do not fully account for.

Public Good

A product that one individual can consume without reducing its availability to another individual and from which no one is excluded.

Marginal Benefit

The incremental utility or satisfaction derived from the consumption or production of an additional good or service unit.