The December 31, 2014 balance sheet of Myers and Myers, prepared under generally accepted accounting principles, follows. (This problem requires knowledge of present value calculations. Refer to Appendix A.)

An investor believes that Myers and Myers can generate $20,000 cash per year for ten years, at which time it could be sold for $80,000. The FMVs of each asset as of December 31, 2014, follow:
Cash ................ $ 10,000
Short-term investments ......... 14,000
Land ................ 60,000
Buildings and machinery ......... 40,000
Total FMV .............. $124,000

a. What is the book value of Myers and Myers as of December 31, 2014?
b. What is the value of Myers and Myers as a going concern (i.e., present value of the net future cash inflows) as of December 31, 2014? Assume a discount rate of 10 percent.
c. What is the liquidation value of Myers and Myers (i.e., how much cash would Myers and Myers be able to generate if each asset were sold separately and each liability were paid off on December 31, 2014)?
d. Discuss the differences among the book value of the company, the present value, and the liquidation value. Calculate goodwill, and explain it in terms of these three valuationbases.

  • CreatedAugust 19, 2014
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