The Widget Co

question 45

Multiple Choice

The Widget Co.purchased new machinery three years ago for $4 million.The machinery can be sold to the Roman Co.today for $2 million.The Widget Co.'s current balance sheet shows net fixed assets of $2,500,000,current liabilities of $1,375,000,and net working capital of $725,000.If all the current assets were liquidated today,the company would receive $1.9 million in cash.The book value of the Widget Co.'s assets today is _____ and the market value of those assets is _____.

• A)$4,600,000; $3,900,000
• B)$4,600,000; $3,125,000
• C)$5,000,000; $3,125,000
• D)$5,000,000; $3,900,000
• E)$6,500,000; $3,900,000

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Definitions:

Earned Capital

The portion of shareholders' equity derived from profitable operations, representing retained earnings and not contributed capital.

Common Shares

Equity investments that represent a unit of ownership in a corporation and give shareholders voting rights and dividends.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, giving more weight to some numbers than others.

Treasury Stock

Shares that were issued and subsequently reacquired by the issuing company, reducing the amount of outstanding stock on the company's balance sheet.