Question

ARE MARKET VALUES LESS DESIRABLE THAN BOOK VALUES FOR WEIGHTING A FIRMS FUNDING COPONENTS

ARE MARKET VALUES LESS DESIRABLE THAN BOOK VALUES FOR WEIGHTING A FIRMS FUNDING COPONENTS

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

No, market values are more desirable than book values for weighting a firm's funding components because investors would require the opportunity cost of capital or the minimun required return on the capital on the market value of capital and not on the book value.

For example - for example a firm issues its stock 2 years back when the firm's stock was $150. The same stock is $200 now and the market return is 18%. In this case the investors would require return on the market value of $200 and not the book value of $150.

I hope this helps you

Feel free to reach out in the comments

Also press the like button

Thanks & Regards

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
11 the following are true or false 6) generally, market value are less desirable than book...
11 the following are true or false 6) generally, market value are less desirable than book value for weighing a firm's funding components. 13) yield-to- maturity and Rd are not synonymous 18) other things equal, the retaer the WACC, the greater the NPV will be. 19) if 1000 shares of stock sell $20 per share and 50 bonds sell for $800 each, their combined market value <$50,000 20) If a firm's capital structure is 40% equity and 60% debt while...
5.1.c - book value vs market value: For purposes of valuation, ... ... book values are...
5.1.c - book value vs market value: For purposes of valuation, ... ... book values are more important than market values because market values represent the opinions of investors who are not necessarily 'rational' as assumed in most models of capital markets and asset pricing. ... market values are more important than book values because market values represent financial claims holders' assessment of the value of free cash flows from the firm to which they have rights of ownership. ......
6. Why do we use market values rather than book values in calculation of WACC? Dr....
6. Why do we use market values rather than book values in calculation of WACC? Dr. Pepper, a manufacturer of beverages, is planning to purchase Canada’s Wonderland theme park. Should Dr. Pepper use its own WACC as the discount rate to evaluate the business of Canada’s Wonderland or should it use Canada’s Wonderland’s WACC? Explain your answer.
firms in competitive markets on average advertise more than firms in monopolistic market and oligopoly market
firms in competitive markets on average advertise more than firms in monopolistic market and oligopoly market
Medicaid has a less than desirable reputation due to its low reimbursements and many providers will...
Medicaid has a less than desirable reputation due to its low reimbursements and many providers will not accept Medicaid patients. That trend is not expected to change in the future. In order for Medicaid to realize its full potential in the era of ACA what needs to be done to improve the Medicaid “brand” and encourage providers to take another look and participate in the networks?
Market Verses Book Values. State whether each of the following events would increase or decrease the...
Market Verses Book Values. State whether each of the following events would increase or decrease the ratio of market value to book value. 1. Big Autos increases its depreciation provision 2.Since Big Stores purchased its assets, inflation has risen sharply. I know it's suppose to be a increase and decrease result but I don't understand why? I'm stuck with the idea that if there is an increase in depreciation allocation, that lowers fixed assets Book Value, and it would lower...
Concept: "The Relevance of Market Values over Book Values” The student’s understanding (in own words) of...
Concept: "The Relevance of Market Values over Book Values” The student’s understanding (in own words) of the concept/principle: A practical example illustrating the concept/principle: The rationale or reason why the concept is important in economics: What two (2) critical assumptions underlie the concept/principle? Provide two (2) critiques or counters of the assumptions outlined above..
A natural monopoly is a desirable market structure because A) It allows the producer to deliver...
A natural monopoly is a desirable market structure because A) It allows the producer to deliver a higher-quality product to the market. B) It allows the producer to earn greater profit than is possible under competition. C) The jobs it creates pay higher wages than those in a competitive industry. D) It allows the producer to deliver products to the market at the lowest possible cost.
Our text states the “Market values of assets and liabilities do not generally equal their book...
Our text states the “Market values of assets and liabilities do not generally equal their book values.” Why? How would this affect a bank looking at a company’s balance sheet while considering a long-term loan request from that company?
In a perfectly competitive market, how do firms set their price? a) Take the market price...
In a perfectly competitive market, how do firms set their price? a) Take the market price b) Sell for less than market price to undercut competitors c) Set MR = MC and solve d) Sell for more than market price to make more profit
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT