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A firm presents a market value balance sheet and a book value balance sheet to prospective investors
A firm presents a market value balance sheet and a book value balance sheet to prospective investors. What is wrong with using the book value version of the balance sheet in making a decision to invest in the company?
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A :
The book value is based on comparative values.
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B :
The book value is too low compared to market values.
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C :
The book value is based on historical values.
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D :
The book value represents sample values used in the sheet.
Expert Solution
C :
The book value is based on historical values
Book value of all items on the balance sheet reflects the value of the items at the time they were "booked" in other words the purchase price, which may not reflect the current value of these items
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