The Cooney Corporation has fixed assets with a book value of $700 and an appraised market value of about $1,000. Net working capital is $400 on the books, but approximately $600 would be realized if all the current accounts were liquidated.

Cooney has $500 in long-term debt, in book value and market value terms. What is the book value of the equity? What is the market value?

We can construct two simplified balance sheets, one in accounting (book value) terms and one in economic (market value) terms:

In this example, shareholders’ equity is actually worth almost twice as much as what is shown on the books. The distinction between book and market values is important precisely because book values can be so different from market values.

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Assets Net working capital Net fixed assets COONEY CORPORATION Balance Sheets Market Value versus Book Value Market Book $ 400 $ 600 700 1,000 $1,100 $1,600 Liabilities and Shareholders' Equity Book $ 500 600 $1,100 Long-term debt Shareholders' equity Market $ 500 1,100 $1,600