ABC Company sales last year were 454, 000 , and its yearend total assets were 798000. The average in the industry has a total assets tumover ratio of 7 ABCCompany's new CFO believes the has excess assets that can be sold so as to bring the down total assets turnover ratio 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? Note: In writing your answer, using the comma In separating the digits, and round your answer to the nearest dollar. Answer?

ABC Company

The assets must be reduced by $733,000 to bring the total assets turnover ratio to the industry average, while holding sales constant.

Explanation:

a) Data and Calculations:

Last year's sales = $454,000

Year end total assets = $798,000

Industry average total assets turnover ratio = 7

ABC's total assets are supposed to be $65,000 ($454,000/7)

The assets must be reduced by $733,000 ($798,000 - $65,000)

b) With the reduction of assets to $65,000, the assets turnover ratio of ABC Company will be equal to 7 ($454,000/$65,000).

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