A firm is evaluated using the liquidation valuation.Which one of the following would increase the value of the firm?
A)High level of unrecoverable accounts receivable
B)Debt capacity of the firm is maximized
C)Bankruptcy of major firm clients
D)None of the above

Question

Quizplus · Accepted Answer

The liquidation valuation method determines the value of a firm by assessing the value of its assets if they were to be sold in a liquidation sale. Therefore, factors that would decrease the value of the assets would reduce the value of the firm. A high level of unrecoverable accounts receivable and bankruptcy of major clients would both decrease the value of the firm. Maximizing the debt capacity of the firm may provide short-term benefits, but in the long run, it would increase the risk of bankruptcy and reduce the value of the firm. Overall, none of the options listed would increase the value of the firm when evaluated using the liquidation valuation method.

A Firm Is Evaluated Using the Liquidation Valuation