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Which one of the following statements is correct? Question 5 options: 1) Shareholders' equity and debt...

Which one of the following statements is correct? Question 5 options: 1) Shareholders' equity and debt are the residual value of a firm. 2) Net working capital is always a positive value. 3) An increase in cash reduces the liquidity of a firm. 4) In a secondary market transaction, stocks are traded between existing shareholders.

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Answer #1

Answer: In a secondary market transaction, stocks are traded between existing shareholders.

1) Residual value of a firm represents only equity part and not debt part.

2) Networking capital can be negative when value of current liabilities exceeds value of current assets.

3) Liquidity is refers to the ability to pay short term debt and when cash increases liquidity also increases.

4) In primary market company issues stock for the first time to investors and a secondary market transaction, stocks are traded between existing shareholders.

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