What happens to the market value of a firm's equity as the book value of the firm's equity increases?
A) It increases by the same amount.
B) It decreases by the same amount.
C) It remains constant.
D) There is no set relationship to determine this outcome.

Question

Quizplus · Accepted Answer

The market value of a firm's equity is determined by various factors, such as the company's financial performance, growth prospects, macroeconomic factors, investor sentiment, and industry trends. While the book value of equity is an important metric, it does not necessarily determine the market value of a company's equity. Market value is often driven by investor perception of future growth and profitability, which may deviate significantly from the book value. As a result, there is no set relationship between the two, and the market value may increase, decrease or remain constant relative to the book value depending on multiple factors.

What Happens to the Market Value of a Firm's Equity