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18 March, 20:25

Southwest Co. has equipment with a book value of $3,560 that could be sold today for $3,900. Its inventory is valued at $1,780 and could be sold immediately to a competitor at a discount of 25 percent. The firm has $260 in cash and customers owe the firm $950, of which 98 percent is collectible.

What is the current market value of the firm's assets?

A: $6,086

B: $5,536

C: $6,426

D: $6,316

E: $5,946

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  1. 18 March, 20:27
    0
    correct option is C: $6,426

    Explanation:

    given data

    book value = $3,560

    sold today = $3,900

    inventory valued = $1,780

    discount = 25 percent

    cash = $260

    owe firm = $950

    collectible = 98 %

    solution

    we get here current value of Inventory that is express as

    current value of Inventory = Inventory Value * (1 - Discount %) ... 1

    current value of Inventory = $1,780 * (1 - 0.25)

    current value of Inventory = $1,335

    and

    now accounts Receivable will be

    accounts Receivable = Owed by customers * Collectible % ... 2

    accounts Receivable = $950 * 0.98

    accounts Receivable = $931

    and current market value of Firm asset

    current market value of Firm asset = Equipment + Inventory + Accounts Receivable + Cash ... 3

    current market value of Firm asset = $3,900 + $1,335 + $931 + $260

    current market value of Firm asset = $6,426

    so correct option is C: $6,426
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