Question

Friers Industry Inc. purchased new machinery three years ago for $7 million. The machinery can be sold to Simpson Industries today for $4.9 million. Friers current statement of financial position shows net fixed assets of $3.7 million, current liabilities of $1.1 million, and net working capital of $380,000. If all the current assets were liquidated today, the company would receive $1.6 million cash. What is the book value of Friers’ assets today? What is the market value? Round your answers to 2 decimal points. Show your work.

Answer 1

ANSWER:

1) Net Working Capital=(Current Assets) –(Current Liabilities)

Current Assets=(Net working Capital)+(Current Liabilities)

=$380,000+$1,100,000

=$1,480,000

Net fixed assets=$3.7 million

Book value of Fixed assets=$3.7 million=$3,700,000

Book Value of Current Assets=$1,480,000

Book Value of Total assets=(3,700,000+1,480,000)= $5,180,000

Book Value of Total Assets

$ 5,180,000

2) Market value of Net working Capital=$1.6 million

Market value of Fixed assets=$4.9 million

Sum of market value of fixed asset and market value of NWC

=$4.9 million+$1.6 million

=$6.5 million

=$6,500,000

Sum of market value of fixed asset and market value of NWC

$6,500,000