Question

Recently, the owner of Martha's Wares encountered severe legal problems and is trying to sell her business. The company built a building at a cost of $1,280,000 that is currently appraised at $1,480,000. The equipment originally cost $760,000 and is currently valued at $507,000. The inventory is valued on the balance sheet at $450,000 but has a market value of only one-half of that amount. The owner expects to collect 97 percent of the $245,200 in accounts receivable. The firm has $10,900 in cash and owes a total of $1,480,000. The legal problems are personal and unrelated to the actual business. What is the market value of this firm?

Answer 1

Answer:

The market value of this firm is $980,744

Explanation:

The computation of the market value is shown below:

= Current value of building + current value of building + market value of inventory + accounts receivable + cash balance - owing balance

= $1,480,000 + $507,000 + $225,000 ($450,000 × 50%) + $237,844 ($245,200 × 98%)  + $10,900 - $1,480,000

= $980,744

We take the market value instead cost value, as question has asked for the market value of the firm