Some fundamental multiple-choice questions derived from this chapter:
1. Which of the following statements about the current-asset value of a stock is most accurate?
a) It gives an exact measure of the company's liquidation value.
b) It provides a rough approximation of liquidation value.
c) It tends to overstate liquidation value.
d) It ignores the value of fixed assets.
2. Which of the following can contribute to a stock rising after trading below liquidation value?
I. Industry conditions improving
II. Sale of the company
III. Changes in management and strategy
a) I only
b) I and II only
c) II and III only
d) I, II and III
3. Stocks trading far below liquidation value may represent opportunities for investors, but also indicate:
a) The company should be liquidated
b) Management's policies are sound
c) The market is functioning efficiently
d) Something is likely wrong with the company or market perspective
4. When a stock trades far below liquidation value, shareholders should:
a) Passively accept the low price
b) Assume management has a sound strategy
c) Question if liquidation makes sense
d) Avoid asserting their ownership rights
5. Common stocks trading below liquidation value generally offer:
a) High return potential, but high risk
b) High return potential with low risk
c) Low return potential and high risk
d) Average return potential and risk
6. Companies with stocks trading below liquidation value and rapidly declining current assets are:
a) The best candidates for investment
b) Good candidates if past earnings were strong
c) Poor candidates for investment
d) Appropriate if industry conditions are improving
Answers: BDDCB C