Klingon Cruisers, Inc., purchased new cloaking machinery five years ago for $10 million. The machinery can...

Klingon Cruisers, Inc., purchased new cloaking machinery five years ago for $10 million. The machinery can be sold to the Romulans today for $9.1 million. Klingon's current balance sheet shows net fixed assets of $8 million, current liabilities of $780,000, and net working capital of $220,000. If all the current accounts were liquidated today, the company would receive $1.02 million cash.

a.	What is the book value of Klingon's assets today? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)
b.	What is Klingon's market value of assets? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Solutions

Expert Solution

a.
Book value of assets is the value of assets as per books of account.
Calculation of book value of assets
Book value of assets = Book value of current assets + Book value of fixed assets
Book value of assets	1,000,000+8,000,000
Book value of assets	$9,000,000
Thus, book value of assets is $9,000,000.

Calculation of book value of current assets
Net working capital = Current assets - Current liabilities
220,000 = Current assets - 780,000
Current assets = 780,000+220,000
Current assets	$1,000,000

b.
Market value of assets is the realizable value of assets if they are sold today.
Market value of assets	Market value of current assets+Market value of fixed assets
Market value of assets	1020000+9100000
Market value of assets	$10,120,000
Thus, market value of assets is $10,120,000.

jeff jeffy answered 1 month ago

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