There was an upward trend in the ratio of the book value of debt to the book value of debt and equity throughout the 1990s.Some of this was due to the repurchasing of shares.The market value
Ratio of debt to debt and equity exhibited no upward trend.This can be explained by:
A)the change in the accounting rules of the period.
B)the difference between tax accounting and accounting for ﬁnancial accounting purposes.
C)a large increase in the market value of equity that was greater than the increase in debt.
D)All of the above.
E)None of the above.

Question

Quizplus · Accepted Answer

The fact that the market value ratio of debt to debt and equity did not exhibit an upward trend suggests that the increase in the book value ratio was due to a large increase in the market value of equity that was greater than the increase in debt. This is the most likely explanation as there is no evidence of a change in accounting rules or difference between tax accounting and accounting for financial accounting purposes.

There Was an Upward Trend in the Ratio of the Book