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Just being reading the answer of Collingham in Kaplan exam kit
It said dispose of any surplus assets in order to reduce gearing and/ or to increase liquidity.
Can anyone explain it?
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sell surplus assest , you get cash in hand, liquidity improved that is no doubt.
by selling surplus asset, the market value (120)is greater than book value(100), ie. 120-100=20 , it will increas shareholder funds by 20, so equity is increased, gearing will be reduced.
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