During a Recession, Which of the Following fiRms Are Likely

question 61

Multiple Choice

During a recession, which of the following firms are likely to be profitable?

• A) A manufacturer of expensive automobiles.
• B) A luxury hotel.
• C) A boutique offering high-end designer products.
• D) A manufacturer of value lines for supermarkets.

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Definitions:

Liquidation Value

The estimated total value of a company's physical assets if it were to go out of business and the assets sold off.

Replacement Cost

The amount of money required to replace an asset at the current market value.

Tobin's Q

A ratio comparing the market value of a company's assets to their replacement cost, used to evaluate whether a company is over or undervalued.

Earnings Management

The practice of using accounting techniques to produce financial reports that may mislead stakeholders about a company's financial condition.