Regression and inventories Charlie\'s Cycles Inc. has $150 million in sales. The
ID: 2716261 • Letter: R
Question
Regression and inventories
Charlie's Cycles Inc. has $150 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 + 0.1010(Sales)
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
What are your forecasts of the company's year-end inventory turnover ratio? Round your answer to two decimal places.
Explanation / Answer
solution sales 150,000,000 projected sales (150000000x1.05) 157,500,000 year end Inventories = 14 + 0.1010(Sales) 15,150,014 year-end inventory turnover ratio 10.40 sales / inventory = 157500000/15150014