CFA Practice Question
Which equation is true regarding different value definitions of an asset?
A. Fair market value is always >= liquidation value.
B. Going concern value is always >= liquidation value.
C. Going concern value is always >= fair market value.
Explanation: Fair market value is the higher of going concern value or liquidation value.
User Contributed Comments 4
| User | Comment |
|---|---|
| SRI2010 | Why not B? |
| dimitris13 | I think B is also right. Anyone? |
| darbyland | GCV is not always greater / equal to liquidation value. when the industry is dying, liquidation value can have greater value than GCV |
| JNW1980 | B is not correct for a company in bankruptcy with no future for operations. The fair value would be to sell off the assets and use it to pay off creditors and then equity holders (yeah right). If the company was losing money and had no viable business model then to continue as a going concern would mean they would incur more losses. That would be value destructive. So the liquidation value is higher. |