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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. ... market values are more important than book values because book values are entirely arbitrary measures of accounting. ... book values are more important than market values because book values correspond to relevant measures of cash flows as codified in Securities and Exchange Commission (SEC) regulations.

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Answer #1

Correct option: 2nd option
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.

1st is wrong because Book values are not accurate measures of present worth
3rd is wrong because book values are not arbitrary but under a certain framework
4th is wrong becuase book values are dependent on accounting rules and can differe from one standard to another

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