Question

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $7.6 million. The machinery can be sold to the Romulans today for $4.45 million. Klingon's current balance sheet shows net fixed assets of $3.25 million, current liabilities of $1.6 million, and net working capital of $520,000. If all the current assets and current liabilties were liquidated today, the company would receive $2.05 million cash.

a.	What is the book value of Klingon's total assets today?

b.	What is the sum of the market value of NWC and market value of fixed assets?

Answer 1

a. The book value is computed as shown below:

= Fixed Assets + Current Assets

Current Assets value is computed as shown below:

Current Assets = Net working capital + Current Liabilities

= $ 520,000 + $ 1,600,000

= $ 2,120,000

So, the book value of the assets will be as follows:

= Fixed Assets + Current Assets

= $ 3,250,000 + $ 2,120,000

= $ 5,370,000

b. The market value is computed as shown below:

= Sales value of machinery + cash received if current assets and current liabilities liquidated

= $ 4,450,000 + $ 2,050,000

= $ 6,500,000

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