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 market value ratio of debt to debt and equity did not exhibit an upward trend because the increase in the market value of equity was greater than the increase in debt. This suggests that the company had significant growth potential and was able to generate positive investor sentiment, which is reflected in the market value of equity. The other options are not relevant to explaining the lack of upward trend in the market value ratio of debt to debt and equity.

There Was an Upward Trend in the Ratio of the Book