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?

Question

Quizplus · Accepted Answer

To calculate the investment in current assets, we need to use the formula:
Investment in Current Assets = Current Asset/Sales Ratio x Projected Sales
The Current Asset/Sales Ratio can be calculated as follows:
Current Asset/Sales Ratio = Current Assets/Sales = $5 million/$25 million = 0.2
Using this ratio and the projected sales of $31 million, we can calculate the investment in current assets as follows:
Investment in Current Assets = 0.2 x $31 million = $6.2 million
Therefore, the correct answer is C) $6.2 million.

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