What will be the effect of using book value of debt in WACC decisions if interest rates have decreased substantially since a firm's long-term bonds were issued?
A) The debt-to-value ratio will be overstated
B) The debt-to-value ratio will be understated
C) There will be no effect on WACC decisions
D) Cannot be determined without knowing interest rates Example
Market Value of Equity = $5 million
Book Value of Debt = $2 million
Value of Firm = $7 million
Correct Answer:
Verified
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