Question

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6.3 million. The machinery can be sold to the Romulans today for $4.3 million. Klingon's current balance sheet shows net fixed assets of $2.8 million, current liabilities of $1.6 million, and net working capital of $480,000. If all the current assets and current liabilties were liquidated today, the company would receive $2 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 of the assets is computed as shown below:

= net fixed assets + current assets

current assets is computed as follows:

net working capital = current assets - current liabilities

$ 480,000 + $ 1,600,000 = current assets

current assets = $ 2,080,000

So, the book value will be as follows:

= $ 2,800,000 + $ 2,080,000

= $ 4,880,000

b. The market value is computed as follows:

= Sale value of the machinery + cash

= $ 4,300,000 + $ 2,000,000

= $ 6,300,000

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