The Whitehorse Bookshop Company has non-current assets with a book value of $8000 dollars and an appraised market value of $15 000.Net working capital is $5000 on the books,but if liquidated about $7000 would be realised.The company has recently issued 100 long-term maturity debentures with a face value of $100 each.Current market price of one debenture is equal to $100.What is the market value of the equity?

Question

Quizplus · Accepted Answer

To determine the market value of the equity, we need to subtract the total liabilities from the total assets.

Total assets = non-current assets + net working capital = $8,000 + $5,000 = $13,000

If the net working capital is liquidated, the company would realize $7,000, so we can adjust the total assets by adding the difference:

Adjusted total assets = $13,000 + ($7,000 - $5,000) = $15,000

Total liabilities = face value of debentures issued = 100 x $100 = $10,000

Market value of the equity = adjusted total assets - total liabilities = $15,000 - $10,000 = $5,000

Therefore, the correct answer is (C) $12,000.

The Whitehorse Bookshop Company Has Non-Current Assets with a Book