Question

Why is the market value of equity (stock) in a firm facing bankruptcy less than the book value of its equity? Choose all that are correct: Question 4 options: The current market value reflects the expected payout to equity holders in a bankruptcy; this payout may be $0.0. The firm must pay off all of its its liabilities before any money can be paid to equity holders. There is likely to be no money left after paying off the liabilities. Stock (equity) holders are the last to get paid in a bankruptcy and sometimes get paid nothing

and

A firm with inventory of $68, total current assets of $724, and current liabilities of $550 has a quick (acid test) ratio of ____. Round your answer to two decimal points; example 1.12.

Your Answer:

Answer 1

In the event of bankruptcy , Stock(equity) holders are the last to get paid in a bankruptcy and sometimes they get paid nothing. This is the reason why the market value of equity is less than the book value of equity.

Quick ratio= (Current Assets - Inventory)/ Current Liabilties = (724 - 68)/ 550 = 1.19