Question

Why market value is more important than book value?
Select one:
a. Manager is responsible to increase the market value
b. Book value is more important than market value
c. All are true
d. Market value provide the real value of firm’s asset
e. Market value determines firm’s ability to pay their debt

Answer 1

Answer-

The correct option is d. Market value provide the real value of firm’s asset.

Market value is the value of the assets that we will receive if we plan to sell it today and it provides the real value of firm's assets.

Book value is the net assets value of the company and is calculated as the sum of total assets minus the amount of intangible assets.

The Other options a,b,c and e are incorrect.

Option a, managers good investments may increase the market value but managers are note responsible.
Option b is not a justified statement as both book value and market value has their own significance.
Option e is incorrect as market value gives market capitalization not the ability to pay off debt.