I came across a question (not WILEY) The question is as below Liquidation value is A) the same as breakup value which is the sum of expected value of a company’s parts if parts were independent entities B) not the same as breakup value C) same as private market value which is the sum of expected value of a company’s parts if parts were independent entities The answer is B I would have thought it was A Thoughts?
Actually both B) and C) are correct, but C) is more correct…?
Breakup value is going concern concept, whilst in liquidation value we assume that the company is going out of business.
In liquidation value you ignore intangibles, so no brand, goodwill, IP etc.
In my understanding then, breakup value > liquidation value.
What GE is doing right now is an example of breakup value, they feel that all of their divisions are more valuable apart than together. Liquidation value assumes that a company shuts downs and sells all the pieces, and therefore stops operating. Private market value is a different concept, it’s basically that illiquid private stock is less valuable than liquid publicly traded stock.
Thanks guys for the inputs