REGRESSION AND INVENTORIES Problem 16.12: Not Answered uliailles cycles IIL, las

Question

REGRESSION AND INVENTORIES Problem 16.12: Not Answered uliailles cycles IIL, las ?100 million in sales. The company expects that its sales will increase 5% this year. Charlie'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 as follows: Inventories = $14 + 0.0970(Sales) a. 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? Enter your answer in millions. For example, an answer of $25,000,000 should be entered as 25. Round your answer to two decimal places. million b. What are your forecasts of the company's year-end inventory turnover ratio? Do not round intermediate calculations. Round your answer to two decimal places. times

Explanation / Answer

Answer a.

Current Sales = $100 million
Increase in Sales = 5%

Forecasted Sales = $100 million * 105%
Forecasted Sales = $105.00 million

Year-end Inventory = $14 + 0.0970 * Forecasted Sales
Year-end Inventory = $14 + 0.0970 * $105.00 million
Year-end Inventory = $24.19 million

Answer b.

Inventory Turnover Ratio = Forecasted Sales / Year-end Inventory
Inventory Turnover Ratio = $105.00 million / $24.19 million
Inventory Turnover Ratio = 4.34 times

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