Problem:
Kilington Widgets, Inc. purchased new cloaking machinery three years ago for $4 million. The machinery can be sold to Romulans today for $6.2 million. Klingon's current balance sheet shows fixed assets of $2.8 million, current liabilities of $710,000, and new working capital of $130,000. If all the current assets were liquidated today, the company would receive $825,000 cash.
Required:
Question 1: What is the book value of Kingon's assets today?
Question 2: What is the market value?
Note: Provide support for your underlying principle.