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 these.

Question

Quizplus · Accepted Answer

Market values are a better reflection of current value than historical value, which makes them a more accurate measure of a company's debt ratios. In contrast, book values are based on historical accounting records and may not reflect current market conditions.

Financial Economists Prefer to Use Market Values When Measuring Debt