Which of the following is true about the book value and market value of a firm's debt?
A) The book value of a firm's debt will be higher than the market value of the firm's debt.
B) The book value of a firm's debt will be equal to the market value of the firm's debt.
C) The book value of a firm's debt will be equal to the market value of firm's assets.
D) The market value of a firm's debt will be higher than the book value of firm's assets.
E) The market value of a firm's debt will be equal to the market value of a firm's assets.

Question

Quizplus · Accepted Answer

The book value of a firm's debt is the amount of debt recorded in the company's financial statements, and it is based on the historical cost of acquiring the debt. The market value of a firm's debt, on the other hand, is the price that creditors would be willing to pay for that debt on the open market. In general, the market value of a firm's debt will be higher or lower than the book value depending on market conditions and other factors. However, since the book value is based on historical cost and is recorded in the financial statements, it will always be equal to the market value for accounting purposes. Therefore, choice B is the correct answer.

Which of the Following Is True About the Book Value