Rangoon Corp's sales last year were $400,000, and its year-end total assets were $300,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.5. The 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?

Rangoon Corp's sales last year were $400,000, and its year-end total assets were $300,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.5. The 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?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter7: Analysis Of Financial Statements

Section: Chapter Questions

Problem 3Q

See similar textbooks

Similar questions

Wie Corp's sales last year were $260,000, and its year-end total assets were $360,000. 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 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.
Calculate Zumwalt’s net profit margin and debt ratio. Earth’s Best Company has sales of $200,000, a net income of $15,000, and the following balance sheet: . The company’s new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2.5, without affecting either sales or net income. If inventories are sold off and not replaced so as to reduce the current ratio to 2.5, if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE change? b. Now suppose we wanted to take this problem and modify it for use on an exam—that is, to create a new problem that you have not seen to test yourknowledge of this type of problem. How would your answer change if we made the following changes: (1) We doubled all of the dollar amounts? (2) We stated that the target current ratio was 3.0? (3) We said that the company had 10,000 shares of…
Lance Motors has current assets of $1.2 million. The company’s current ratio is 1.2, its quick ratio is 0.7, and its inventory turnover ratio is 4. The company would like to increase its inventory turnover ratio to the industry average, which is 5, without reducing its sales. Any reductions in inventory will be used to reduce the company’s current liabilities. What will be the company’s current ratio, assuming that it is successful in improving its inventory turnover ratio to 5?
Last year Mason Inc. had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $215,000 and its net income was $10,549. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,250 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income in this amount, by how much would the ROE have changed? Select the correct answer. a. 6.74% b. 6.21% c. 7.27% d. 7.80% e. 5.68%
Nutty sales last year were 15, 000 , and its year-end total assets were P355,000. The average firm in the Industry has a total assets turnover ratio of 2.4. The new CFO believes the company has excess assets that can be sold so as to bring the total assets turnover ratio down to the industry average without affecting sales. By how much must the assets be reduced to bring the total assets tumover ratio to the industry average, holding sales constant?
Saddie & Co.'s return on assets (ROA) for the current year was 6.23%. Which of the following is true if Saddie & Co. wishes to increase their ROA? The company should decrease asset turnover. O The company should increase the selling price of its goods or services. The company should increase the cost of its products. The company should increase the amount of assets it has.
JC Goods, Inc. has a profit margin of 10% and a total assets turnover of 0.30. The president believes that the existing return on assets might be quadrupled and is dissatisfied with it. One way to do this is by raising the profit margin to 15%, and another is by raising the total assets turnover.What new asset turnover ratio is necessary to double the return on assets in addition to the 15% profit margin? a. 35%b. 45%c. 40%d. 50%
Last year Urbana Corp. had $197,500 of assets, $307,500 of sales, $19,575 of net income, and a debt-to-total-assets ratio of 37.5%. The new CFO believes a new computer program will enable it to reduce costs and thus raise net income to $33,000. Assets, sales, and the debt ratio would not be affected. By how much would the cost reduction improve the ROE?
JC Goods, Inc. has a total assets turnover of 0.30 and a profit margin of 10percent. The president is unhappy with the current return on assets, and he thinks it could be doubled. This could be accomplished (1) by increasing the profit margin to 15 percent and (2) by increasing the total assets turnover.What new asset turnover ratio, along with the 15 percent profit margin, isrequired to double the return on assets?a. 35%b. 45%c. 40%d. 50%
Last year, Mason Inc. had a total assets turnover of 1.35 and an equity multiplier of 1.50. Its sales were $185,000, and its net income was $10,549. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,250 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income in this amount, by how much would the ROE have changed? ROE before cost savings: ___________%.? ROE after cost savings: ___________ %.? Improvement in ROE: ____________%?
Last year Rosenberg Corp. had $195, 000 of assets, S18,775 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE? Question 5 options: 4.36% 4.57% 4.80% 5.04%
Ian Goods, Inc. has a total assets turnover of 0.30 and a profit margin of 10%. The president is unhappy with the current return on assets, and he thinks it could be doubled. This could be accomplished (1) by increasing the profit margin to 15% and (2) by increasing total assets turnover. What new asset turnover ratio, along with the 15% profit margin, is required to double the return on total assets? (SHOW SOLUTION) a. 35% b. 45% c. 40% d. 50%