A firm is technically insolvent when:
A)it has a negative book value.
B)total debt exceeds total equity.
C)it is unable to meet its financial obligations.
D)it files for bankruptcy protection.
E)the market value of its stock is less than its book value.

Question

Quizplus · Accepted Answer

Technical insolvency refers to a situation where a company is unable to meet its financial obligations, such as paying off its debts as they become due. Therefore, the best choice is C. Option A refers to negative net worth, while option B refers to a higher level of debt than equity, which may not necessarily mean insolvency. Option D refers to bankruptcy protection, which is a legal status a company can seek to reorganize its debt. Option E refers to the market value of a company's stock, which may not reflect its solvency status.

A Firm Is Technically Insolvent When