Chapter 02 - Reviewing Financial Statements
39. Market Value versus Book Value Glo's Glasses balance sheet lists net fixed assets as $20 million. The fixed assets could currently be sold for $25 million. Glo's current balance sheet shows current liabilities of $7 million and net working capital of $3 million. If all the current accounts were liquidated today, the company would receive $9 million cash after paying $7 million in liabilities. What is the book value of Glo's assets today? What is the market value of these assets? A. $10 million, $16 million B. $10 million, $35 million C. $30 million, $35 million D. $30 million, $41 million
Step 1. Net working capital (book value) = Current assets (book value) - Current liabilities (book value) = $3 m. = Current assets (book value) - $7m. => Current assets (book value) = $3m. + $7m. = $10m. Step 2. Total assets (book value) = $10m. + $20m. = $30m. Step 3. Net working capital (market value) = Current assets (market value) - Current liabilities (market value) = $9m. = Current assets (market value) - $7m. => Current assets (market value) = $9m. + $7m. = $16m. Step 4. Total assets (market value) = $16m. + $25m. = $41m. AACSB: Analytical Blooms: Apply Difficulty: 2 Intermediate Learning Objective: 02-02 Differentiate between book (or accounting) value and market value. Topic: Book vs. Market Value