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. Stock (equity) holders are the last to get paid in a bankruptcy and sometimes get paid nothing 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. The current market value reflects the expected payout to equity holders in a bankruptcy; this payout may be $0.0.

Answer 1

Ans) First two option is correct because equity holder has residual claim which is paid after all other stakeholders like deb holders or preference share holder. There is huge chances that in case of bankruptcy equity holder will not get any money.