Question

Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $4.0 million. The machinery can be sold to the Romulans today for $6.2 million. Klingon’s current balance sheet shows net fixed assets of $2.8 million, current liabilities of $710,000, and net working capital of $130,000. If all the current accounts were liquidated today, the company would receive $825,000 cash.

a.	What is the book value of Klingon’s total assets today? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
b.	What is the sum of the market value of NWC and the market value of fixed assets? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

Answer 1

a.

Compute the current assets, using the equation as shown below:

Current assets = Net working capital + Current liabilities

                       = $130,000 + $710,000

                       = $840,000

Hence, the current assets of the company is $840,000.   

Compute the book value of total assets, using the equation as shown below:

Total assets = Fixed assets + Current assets

                    = $2,800,000 + $840,000

                    = $3,640,000

Hence, the book value of the total assets is $3,640,000.   

b.

Compute the total market value, using the equation as shown below:

Market value = Market value of fixed assets + Market value of current assets – Current liabilities

                       = $6,200,000 + $825,000 – $710,000

                       = $6,315,000

Hence, the total market value is $6,315,000.