Adjusted BV: Sterling, Inc., has cash of $10,000, receivables of $31,250, and inventory of $27,445. In addition, the firm has fixed assets of $125,000. Management has also told you that you can reasonably expect to collect 91 percent of the receivables, that the inventory could be sold to realize 85 percent 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 sum of the cash, the net realizable value of the receivables, the net realizable value of the inventory, and the net realizable value of the fixed assets. The net realizable value of the receivables is 91% of $31,250, or $28,338. The net realizable value of the inventory is 85% of $27,445, or $23,373. The net realizable value of the fixed assets is $96,100. Therefore, the liquidation value is $10,000 + $28,338 + $23,373 + $96,100 = $157,811.