Wie Corp's sales last year were $260,000,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? Do not round your intermediate calculations.

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Quizplus · Accepted Answer

The correct answer is A.The TATO is calculated as Sales / Total Assets. To bring the TATO down to the industry average, the firm must reduce its total assets by the amount that is equal to the difference between the firm's current TATO and the industry average TATO, multiplied by the firm's sales.The firm's current TATO is $260,000 / $355,000 = 0.732. The industry average TATO is 2.4. Therefore, the difference between the firm's current TATO and the industry average TATO is 2.4 - 0.732 = 1.668.To bring the TATO down to the industry average, the firm must reduce its total assets by $260,000 * 1.668 = $434,680. However, the firm cannot reduce its total assets below the level of its current sales, which is $260,000. Therefore, the firm must reduce its total assets by $434,680 - $260,000 = $246,667.

Wie Corp's Sales Last Year Were $260,000,and Its Year-End Total