Adjusted BV: Sterling Ltd has cash of $10,000, receivables of $31,250, and inventory of $27,445. In addition, the company has fixed assets of $125,000. Management has also told you that you can reasonably expect to collect 91 per cent of the receivables, that the inventory could be sold to realise 85 per cent of its book value, and that the sale of the property, plant, and equipment would yield $96,100. What is the liquidation value of this company? Round to the nearest dollar.

Question

Quizplus · Accepted Answer

The liquidation value is the amount of money that a company can raise by selling its assets. In this case, the company has cash of $10,000, receivables of $31,250, inventory of $27,445, and fixed assets of $125,000. Management has also told us that we can reasonably expect to collect 91 per cent of the receivables, that the inventory could be sold to realise 85 per cent of its book value, and that the sale of the property, plant, and equipment would yield $96,100. Therefore, the liquidation value of the company is $10,000 + (0.91 * $31,250) + (0.85 * $27,445) + $96,100 = $157,866.

Adjusted BV: Sterling Ltd Has Cash of $10,000, Receivables of $31,250