CFA Practice Question
The fair value of a company is
B. always >= its going concern value.
C. normally less than its going concern value.
D. normally more than its going concern value.
A. always <= its going concern value.
B. always >= its going concern value.
C. normally less than its going concern value.
D. normally more than its going concern value.
Correct Answer: B
The fair value of a firm is the higher of the going concern value and liquidation value. It is therefore >= its going concern value. In generally, it is equal to its going concern value but sometime it can be higher if the going concern value is lower than its liquidation value.
User Contributed Comments 6
| User | Comment |
|---|---|
| taowu | good one! |
| vi2009 | liquidation = how liquid the stock is ... the more popular the stock is in the market the more liquid it is, otherwise there is a liquidity discount |
| Shalva | I got this one wrong .... Interesting concept |
| qwsx | really a awesome q..must admit |
| rhardin | vi2009, this has nothing to do with the "liquidity" of the stock. It has to do with liquidating a company because it is better dissolved then for it to continue in operations. |
| Roy1 | Hmm....Got this wrong. |