Market values rather than book values should be used for determining the optimal capital structure, though in practice, book value is commonly used.

Question

Quizplus · Accepted Answer

Market values are a better indicator of a company's true value and risk profile as they take into account current market conditions and investors' sentiment. Book values, on the other hand, are based on historical accounting data and may not reflect a company's current financial position accurately. However, in practice, book value is commonly used as it is more readily available and easier to calculate.

Market Values Rather Than Book Values Should Be Used for Determining