A company has a market-to-book ratio that is greater than 1.0. If this company uses book values to determine its WACC, it will derive a value that is ______ the market based WACC because _______
A) Equivalent to; the ratio of debt to equity is the same whether book values or market values are used.
B) Greater than; the ratio of debt to equity will be greater than if the ratio was based on market values.
C) Greater than; the ratio of debt to equity will be less than if the ratio was based on market values.
D) Less than; the ratio of debt to equity will be greater than if the ratio was based on market values.
E) Less than; the ratio of debt to equity will be less than if the ratio was based on market values.
Correct Answer:
Verified
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