Assume that Hercules Manufacturing has sales of $25 million and current assets of $5 million.The corporation utilizes the percent-of-sales method of financial forecasting.If Hercules is expected to generate sales of $31 million next year,what will the firm's investment in current assets be?
A)$8.3 million
B)$4.0 million
C)$6.2 million
D)$5.0 million
E)None of the above

Question

Quizplus · Accepted Answer

We can use the formula for the percent-of-sales method of financial forecasting:

Next year's investment in current assets = Current assets * (Next year's sales / Current year's sales)

Substituting the given values:

Next year's investment in current assets = $5 million * ($31 million / $25 million)

Next year's investment in current assets = $6.2 million

Therefore, the answer is C) $6.2 million.

Assume That Hercules Manufacturing Has Sales of $25 Million and Current