Jasper Furnishings has $400 million in sales. The company expects that its sales

Question

Jasper Furnishings has $400 million in sales. The company expects that its sales will increase 8% this year. Jasper's CFO uses a simple linear regression to forecast the company's inventory level for a given level of projected sales. On the basis of recent history, the estimated relationship between inventories and sales (in millions of dollars) is shown below.
Inventories = $35 + 0.21(Sales)

1. Given the estimated sales forecast and the estimated relationship between inventories and sales, what are your forecasts of the company's year-end inventory level? Round your answer to the nearest hundredth of million dollar.

$_____________ millions

2. What are your forecasts of the company's year-end inventory turnover ratio? Round your answer to two decimal places.

_________________ ratio

Explanation / Answer

Sales=$400 million

g=8%

S1==$400 million x 1.08=432 million

Inventories = $35 + 0.21(Sales)

              =$35 + 0.21 x 432

            =$35 + 90.72 =125.72

Since this relationship is expressed in thousands of dollars,

Inv. =125.72 x $1000=125720

Sales/Inv. = 432 /125720 =0.003436 million

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