Market Values and Book Values: Klingon Cruisers, Inc., purchased new cloaking ma

Question

Market Values and Book Values: Klingon Cruisers, Inc., purchased new cloaking machinery three years ago for $9.5 million. The machinery can be sold to the Romulans today for $6.3 million. Klingon's current balance sheet shows net fixed assets of $5 million, current Liabilities of $2.1 million, and net working capital of $800,000. If all the current assets were liquidated today, the company would receive $2.8 million cash. What is the book value of Klingon's assets today? What is the market value?

Explanation / Answer

To find the book value of current assets, we use: NWC = CA – CL. Rearranging to solve for current assets, we get: CA = NWC + CL = $800,000 + $2,100,000 = $2,900,000 Book value of assets = Book value of CA + Book value NFA = $2,900,000 + $5,000,000 = $7,900,000 Market value of assets = Market value of CA + Market value of NFA = $2,800,000 + $6,300,000 = $9,100,000

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