Wie Corp's sales last year were $315,000,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.The firm'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)$201,934
B)$212,563
C)$223,750
D)$234,938
E)$246,684

Question

Quizplus · Accepted Answer

Total Assets Turnover Ratio (TATO) = Sales/Total Assets

TATO for the industry = 2.4
Given, Wie Corp's Sales = $315,000
And, Wie Corp's Year-end Total Assets = $355,000

Thus, Wie Corp's TATO = $315,000 / $355,000 = 0.8873

To bring the TATO to the industry average, we need to reduce the Total Assets.

The new TATO can be calculated as:
2.4 = $315,000 / (Total Assets - Reduction in Assets)

(Total Assets - Reduction in Assets) = $315,000 / 2.4 = $131,250

Total assets need to be reduced by = $355,000 - $131,250 = $223,750

Hence, the correct answer is C) $223,750

Wie Corp's Sales Last Year Were $315,000,and Its Year-End Total