Assume that Mittinger Tool & Die has sales of $25 million and current assets of $5 million.The corporation utilizes the percentage-of-sales method of financial forecasting.If Mittinger 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 using the percentage-of-sales method, we multiply the projected sales by the current asset percentage. The current asset percentage is calculated as the ratio of current assets to sales. Therefore,
Current asset percentage = Current assets / Sales = 5 million / 25 million = 0.2
Investment in current assets = Projected sales * Current asset percentage = 31 million * 0.2 = 6.2 million.
Therefore, choice C, $6.2 million, is the correct answer.

Assume That Mittinger Tool & Die Has Sales of $25