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

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Finance

Klingon Widgets, Inc., purchased new cloaking machinery fouryears ago for $4 million. The machinery can be sold to the Romulanstoday for $3.6 million. Klingon’s current balance sheet shows netfixed assets of $2 million, current liabilities of $700,000, andnet working capital of $216,000. If all the current assets andcurrent liabilities were liquidated today, the company wouldreceive $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 marketvalue of fixed assets?

Answer & Explanation Solved by verified expert
3.7 Ratings (407 Votes)

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.
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