MULTIPLE CHOICE THEORIES.

Write the letter of the best answer before the number of the question or statement being
answered.
1. represents the net amount that can be gathered if the business is shut down and its assets are sold piecemeal.
a. Going Concern Value
b. Liquidation Value
c. Bankruptcy Value
d. Closing Value

2. Which statement is not correct about liquidation value?

a. Liquidation value refers to the value of a company if it were dissolved and its assets sold individually.
b. In some texts, liquidation value is also known as business closing value.
c. Liquidation value may continue to erode based on the time frame available for liquidating assets.
d. If liquidation value becomes higher compared against going concern value, this may signal that a significant business event
transpired which makes the liquidation value more appropriate in valuation exercise.

3. These are situation that most likely consider liquidation value, except
a. Business Failures
b. Divestment
C. Corporate End of Life
d. Depletion of scarce resources

4. Which of the following is not correct related to liquidation value?

a. If the liquidation value is below income approach valuation(based on going-concern principle) and liquidation comes into
consideration, liquidation value should be used.
b. If the nature of the business implies limited lifetime (e.g. a quarry, gravel, fixed-term company etc.), the terminal value must be
based on liquidation. All costs necessary to close the operations (e.g. plant closure costs, disposal costs, rehabilitation costs) should
also be factored in and deducted to arrive at the liquidation value.
c. Non-operating assets should be valued by liquidation method as the market value reduced by costs of sale and taxes. Since they
are not part of the firm's operating activities, it might be inappropriate to use the same going concern valuation technique used for
business operations. If such result is higher than net present value of cash-flows from operating the asset, the liquidation value
should be used.
d. Liquidation valuation must be used if the business continuity is dependent on current management that will not stay.

5. Which of the following is incorrect statement related to the use of Liquidation Value in Investment Analysis?
a. Liquidation value method can also be used as benchmark in making investment decisions.
b. For firms that are experiencing decline or industry is consistently declining, prevailing share prices might be lower than liquidation
value.
c. When liquidation value is lower than market price of share, these corporate investors buy the shares at prevailing market price
and sell the company at the higher liquidation value,
d. If the company can be readily liquidated any time, market price per share should never be below book value per share if all
reported assets in the balance sheet is accurate.

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