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Klingon Widgets, Inc., purchased new cloaking machinery four years ago for $4 million. The machinery can...

Klingon Widgets, Inc., purchased new cloaking machinery four years ago for $4 million. The machinery can be sold to the Romulans today for $3.6 million. Klingon’s current balance sheet shows net fixed assets of $2 million, current liabilities of $700,000, and net working capital of $216,000. If all the current assets and current liabilities were liquidated today, the company would receive $1.03 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 the market value of fixed assets?

Expert Solution

a.Formula for calculating the net working capital:

Net Working Capital= Current Assets- Current Liabilities

$216,000= Current Assets- $700,000

Current Assets= $216,000 + $700,000

= $916,000

Book value of total assets= Current Assets + Net fixed assets

= $916,000 + $2,000,000

= $2,916,000

b.Market value of net working capital= $1,030,000

Market value of fixed assets= $3,600,000

Therefore, the sum of net working capital and fixed assets:

= $1,030,000 + $3,600,000

= $4,630,000.

In case of any query, kindly comment on the solution.

jeff jeffy answered 5 months ago

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