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

Question

Quizplus · Accepted Answer

To find the required reduction in assets, first calculate the target total assets using the industry average TATO: Target Total Assets = Sales / Industry TATO = $415,000 / 2.4 = $172,916.67. The reduction in assets needed is the current assets minus the target assets: $355,000 - $172,916.67 = $182,083.33, which rounds to $182,083.