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

Question

Quizplus · Accepted Answer

Total assets turnover ratio (TATO) = Sales / Total Assets

Industry Average TATO = 2.4
Bonner Corp.'s TATO = Sales / $355,000 = $415,000 / $355,000 = 1.169

We need to find out the amount of reduction in total assets that would bring TATO to the industry average while keeping sales constant.

Industry Average TATO = 2.4 = Sales / New Total Assets
New Total Assets = Sales / 2.4 = $415,000 / 2.4 = $172,916.67

Excess Assets to be Sold = Existing Total Assets - New Total Assets
Excess Assets to be Sold = $355,000 - $172,916.67 = $182,083.33

Therefore, the excess assets that need to be sold to bring the TATO to the industry average while holding sales constant is $182,083.
The answer is C) $182,083.