Which statement about equity value and shareholders' equity is true?

• A. Equity value is the market value and can be negative.
• B. Equity value is the market value and cannot be negative.
• C. Shareholders' equity is the market value and can be negative.
• D. Shareholders' equity is the market value and cannot be negative.

Answer: (B)

Equity value represents the market value of a company’s equity—the stock price times the number of shares outstanding. Because a share price can’t be negative, the market value of equity can’t be negative either. Shareholders’ equity, on the other hand, is an accounting measure equal to assets minus liabilities, and it can be negative if liabilities exceed assets. So the statement that equity value is the market value and cannot be negative is the correct one, since it correctly ties equity value to market pricing and its non-negative nature. The other statements confuse market value with accounting value or imply a negative market value for equity, which isn’t possible in standard financial practice.