Wie Corp's sales last year were $250,000,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.

Question

Quizplus · Accepted Answer

The correct answer is A.The total assets turnover ratio (TATO) is calculated by dividing sales by total assets. Wie Corp's current TATO is $250,000/$355,000 = 0.704. The industry average TATO is 2.4. To bring Wie Corp's TATO to the industry average, the firm must reduce its total assets by $250,000/(2.4-0.704) = $250,833.

Wie Corp's Sales Last Year Were $250,000,and Its Year-End Total