Which term denotes the expected asset value if a company goes out of business and is liquidated?

Which term denotes the expected asset value if a company goes out of business and is liquidated?

• A. Liquidation value
• B. Market value
• C. Replacement value
• D. Book value

Answer: (A)

The idea being tested is what value you get from assets when a company is dissolved and its assets are sold to pay off its debts. The correct term for that scenario is liquidation value. It’s the net cash realizable value after selling the assets and covering liabilities, so it reflects what can be achieved under a forced or rapid sale typical of going-out-of-business processes. Because sales under liquidation are often accelerated and creditors have priority, this amount is usually lower than what the assets might fetch in normal conditions. This differs from market value, which is the price assets would fetch in a typical sale in the open market; replacement value, which is the cost to replace the assets today; and book value, which is the accounting value recorded on the balance sheet.

The idea being tested is what value you get from assets when a company is dissolved and its assets are sold to pay off its debts. The correct term for that scenario is liquidation value. It’s the net cash realizable value after selling the assets and covering liabilities, so it reflects what can be achieved under a forced or rapid sale typical of going-out-of-business processes. Because sales under liquidation are often accelerated and creditors have priority, this amount is usually lower than what the assets might fetch in normal conditions.

This differs from market value, which is the price assets would fetch in a typical sale in the open market; replacement value, which is the cost to replace the assets today; and book value, which is the accounting value recorded on the balance sheet.