Bonner Corp.'s sales last year were $415,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. Bonner's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant?
a. $164,330
b. $172,979
c. $182,083
d. $191,188
e. $200,747

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TomShelby TomShelby · Answer 1 · 2019-09-06T04:38:56+02:00

Answer:

c. $182,083

Explanation:

current numbers:

sales 415,000

assets 355,000

industry average assets turnover

sales / asets = 2.4

How much do assets need to decrease to get an assets turnover of 2.4?

sales will remain unchanged, so we can only adjust assets on the turnover formula:

415,000/assets = 2.4

assets = 415,000/2.4 = 172.916,67

current assets 355,000

target assets 172, 917

decrease in assets 182.083