Question

Question 1a

What is liquidity a measure of? Discuss the potential merits of high liquidity verses low liquidity.

Question 1b
You are reviewing the books of a firm you are considering purchasing and notice a considerable difference between the market value of some assets and the book value.   Why might there be a difference?

Question 1c

If you consider purchasing a firm what is the firm’s enterprise value based on?  (Hint: consider this in terms of the balance sheet entities).  

Comment on the difference between ‘enterprise value’ and ‘market value’.

Question 1d

What is the purpose of a firm? Express you response in terms of owner’s perspective.

Question 1e

A firm is engaging in a large capital project.  It requires 100 Million Dollars for this project.

What options does the firm have to raise funds to finance this large capital project.  

Answer 1

1a) Liquidity is the measure of how easily a company can pay off its current liabilities. This liability rests upto 12 months and how these are paid off is a measure of liquidity. A high liquidity means there will be no problem in servicing the the current oblifations.The firms will have appropirate level of cash to meet the current obligations.The firms will not have to borrow and hence short term costs will decrease. The credit worthiness of the company will increase as it is not defaulting its current obligations.

Note: Kindly post each question separately to get an answer.