If the liquidation value of a corporation exceeds the market value of the equity, then the:
A)Firm has no value as a going concern
B)Firm's stock will sell for book value
C)Firm is not taking advantage of available growth opportunities
D)Dividend payout ratio has been too high

Question

Quizplus · Accepted Answer

The liquidation value of a corporation is the value of its assets if it were to be sold off and liquidated. If the liquidation value exceeds the market value of the equity, then the firm has no value as a going concern. This is because the firm's assets are worth more if they are sold off than if they are used to continue operating the business.

If the Liquidation Value of a Corporation Exceeds the Market