Question

Bonner Corp.'s sales last year were $345,000, 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? Use the year-end balance in your calculations. Select the correct answer. a. $211,325 b. $211,175 c. $211,101 d. $211,250 e. $211,026

Answer 1

d. $211,250

Step-by-step explanation:

The TATO is the ratio of sales to assets:

TATO = sales/assets

Filling in the desired numbers, we can find the desired level of assets:

2.4 = 345,000/assets

assets = 345,000/2.4 = 143,750

Starting with assets of 355,000 the reduction necessary to bring assets down to 143,750 is ...

$355,000 -143,750 = $211,250 . . . . matches choice D