Question

Southwest Co. has equipment with a book value of $3,560 that could be sold today for $3,900. Its inventory is valued at $1,780 and could be sold immediately to a competitor at a discount of 25 percent. The firm has $260 in cash and customers owe the firm $950, of which 98 percent is collectible.
What is the current market value of the firm's assets?

A: $6,086

B: $5,536

C: $6,426

D: $6,316

E: $5,946

Answer 1

Answer:

correct option is C: $6,426

Explanation:

given data

book value = $3,560

sold today = $3,900

inventory valued = $1,780

discount = 25 percent

cash = $260

owe firm = $950

collectible = 98 %

solution

we get here current value of Inventory that is express as

current value of Inventory = Inventory Value  × (1 - Discount %) ..........1

current value of Inventory = $1,780 ×  (1 - 0.25)

current value of Inventory = $1,335

and

now accounts Receivable will be

accounts Receivable = Owed by customers × Collectible %  .............2

accounts Receivable = $950 × 0.98

accounts Receivable = $931

and current market value of Firm asset

current market value of Firm asset = Equipment + Inventory + Accounts Receivable + Cash    ..................3

current market value of Firm asset = $3,900 + $1,335 + $931 + $260

current market value of Firm asset = $6,426

so correct option is C: $6,426