In: Finance
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.
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