Finance homework help. please explain?

Question

Monster Toys 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

Answer 1

Assets need to be reduced by $140,000.

TATO = Revenue / Total Assets

If Revenue and TOTO are known, then:

Assets = Revenue / TATO

$400,000 / 2.5 = $160,000 assets

(Proof:  400,000 / $160,000 = 2.5)

$300,000 - 160,000 = $140,000 amount of reduction in assets needed.