CVS Health Corporation reported sales of $177,526 million, property, plant and equipment (PPE), net of $10,175 million, and capital expenditures of $2,224 million in 2016.
If sales are projected to increase 4% per year over the next five years, what is the projected capital expenditures (purchases of new PPE) for 2017?

Question

Quizplus · Accepted Answer

The projected sales for 2017 would be $177,526 million * 1.04 = $184,627.04 million. However, the question asks for projected capital expenditures, not sales. Since the question does not provide a direct relationship between sales growth and capital expenditures growth, and without any other information provided, we cannot assume that capital expenditures will grow at the same rate as sales. Therefore, the best answer with the information given is to assume capital expenditures remain the same as the previous year, which is $2,224 million. However, since that option is not available and assuming a slight increase might be considered reasonable, the closest reasonable estimate given is $2,400 million.

CVS Health Corporation Reported Sales of $177,526 Million, Property, Plant