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The Harris Corporation currently has the following ratios: Total asset turnover = 1.6 (sales/total assets) Total...

The Harris Corporation currently has the following ratios:

Total asset turnover = 1.6 (sales/total assets)

Total debt to total assets = .5

Current ratio = 1.7

Current liabilities = $2,000,000

(a) If Hariss's sales are $16,000,000 what is the amount of total assets? (1.6=sales/TA)

(b) Of the total in (a) above, what is the amount of current assets? (current ratio = CA/CL=1.7)

(c) What is the total debt of the firm? (total debt to assets = total debt/TA from (a))

(d) If Harriss's sales are expected to increase by $6,400,000 and existing ratios remain unchanged, what is the amount additional assets required? Hint: use 6,400,000 as your sales figure to compute your additional assets. Use the total asset turnover ratio – as this not change.

Expert Solution

a)Total asset turnover = Sales/Total asset

1.6 = 16,000,000 /Total asset

Total asset = 16,000,000/1.6

= 10,000,000

b)Current ratio =Current asset/current liabilities

1.7 = current asset /2,000,000

current asset= 1.7*2,000,000

= 3,400,000

c)Total debt to total asset =Total debt /total asset

.5 = Total debt /10,000,000

Total debt = .5 *10,000,000

= 5,000,000

d)

Total asset turnover =additional Sales/Additional total asset

1.6 = 6,400,000 /Additional total asset

Additional total asset = 6,400,000/1.6

=6,400,000/1.6

= $ 4,000,000

jeff jeffy answered 1 year ago

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