Jake owns the corner market which he is trying to sell. thebuilding was built at
ID: 2771085 • Letter: J
Question
Jake owns the corner market which he is trying to sell. thebuilding was built at a cost of 647,000 and is currently appraisedat 819,000. the counters and fixtures originally cost 148,000 andare currently valued at 65,000. the inventory is valued on thebalance sheet at 319,000 and has a retail market value of 1.2 timesit's cost. jake expects the store to collect 98% of the 21,700 inaccounts receivable. the firm has $26,800 in cash and has totaldebt of 414,700. what is themarket value of this firm? Please help me I am really confused. The book makes it looklike I am trying to find the net working capital of market valueand the net fixed assets of market value and that the market valueof the firm is the sum of those two numbers. It doesn't look like Ihave enough information to answer the ?. Jake owns the corner market which he is trying to sell. thebuilding was built at a cost of 647,000 and is currently appraisedat 819,000. the counters and fixtures originally cost 148,000 andare currently valued at 65,000. the inventory is valued on thebalance sheet at 319,000 and has a retail market value of 1.2 timesit's cost. jake expects the store to collect 98% of the 21,700 inaccounts receivable. the firm has $26,800 in cash and has totaldebt of 414,700. what is themarket value of this firm? Please help me I am really confused. The book makes it looklike I am trying to find the net working capital of market valueand the net fixed assets of market value and that the market valueof the firm is the sum of those two numbers. It doesn't look like Ihave enough information to answer the ?.Explanation / Answer
You are on the right path. There are many corporate valuation models from simple to verycomplex. One of the simpler models is the net asset model. Add marketvalue of assets and subtract market value ofliabilities. This is similar to the accounting balance sheet,except you are using fair market values instead of accounting bookvalues. Think of the net asset valuation method as if yousold the business piece by piece at auction, then paid off anydebts with the auction proceeds.....what would you have left? So the building's contribution to corporate value is its $819k fairmarket value, not its $647k book value. Fixtures fair market valueis $65k, not the balance sheet book value of $148k. Receivablescontribution to corporate value is its expected collection yield(98% x $21.7k), not the full book $21.7k.
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