Question

Muffin’s Masonry, Inc.’s balance sheet lists net fixed assets as $34 million. The fixed assets could currently be sold for $59 million. Muffin’s current balance sheet shows current liabilities of $15.5 million and net working capital of $14.5 million. If all the current accounts were liquidated today, the company would receive $8.25 million cash after paying the $15.5 million in current liabilities.

	book value	market value
	(in millions of dollars)
current assets
fixed assets
total

Answer 1

Let's begin by calculating the net working capital:

Net working capital (NWC) = Current assets (CA) - Current liabilities (CL)

14.5 mil. = CA - 15.5 million

CA = 30 million

Therefore, the book value (BV) of CA = 30 million.

Now let's calculate the book value of the total assets:

BV of total assets (TA) = BV of CA + BV of fixed assets (FA)

BV of total assets = $30 million + $34 million = $64 million

Finally, let's calculate the market value of the current and total assets:

Market value (MV) of CA = 15.5 million + 8.25 million = 23.75 million

MV of TA = MV of FA + MV of CA

MV of TA = 59 million + 23.75 million

MV of TA = $82.76 million