The December 31, 1996 balance sheet of Myers and Myers, prepared under generally accepted accounting principles, follows. (This problem requires knowledge of present value calcula¬ tions. Refer to Appendix 4A.) Assets Cash $ 10,000 Short-term investments 14,000 Land 20,000 Buildings and machinery 80,000 Total assets $ 124,000 Liabilities and Stockholders’ Equity Current liabilities $ 8,000 Long-term liabilities 20,000 Common stock 80,000 Retained earnings 16,000 Total liabilities and stockholders’ equity $ 124,000 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, 1996 follow. Cash $ 10,000 Short-term investments 14,000 Land 60,000 Buildings and machinery 40,000 Total FMV $124,000 REQUIRED:

a. What is the book value of Myers and Myers of December 31, 1996?

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, 1996? 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, 1996)?

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 ofthese three valuation bases.