Financial economists prefer to use market values when measuring debt ratios because:
A)market values are more stable than book values.
B)market values are a better reflection of current value than historical value.
C)market values are readily available and do not have to be calculated like book values.
D)market values are more difficult to calculate which makes financial economists more valuable.
E)None of the above.

Question

Quizplus · Accepted Answer

Financial economists prefer to use market values when measuring debt ratios because market values reflect current value rather than historical value, and provide a more accurate picture of a company's current financial position. Book values, on the other hand, are based on historical costs and do not take into account changes in market conditions. Market values also reflect investors' perceptions of a company's creditworthiness and ability to repay debt, making them more relevant to financial decision-making.

Financial Economists Prefer to Use Market Values When Measuring Debt