Regression and inventories Charlie\'s Cycles Inc. has $200 million in sales. The
ID: 2722658 • Letter: R
Question
Regression and inventories
Charlie's Cycles Inc. has $200 million in sales. The company expects that its sales will increase 6% 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 = 7 + 0.1135(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
Sales in previus year =$200 Mn
Sales expected this year = 200*1.06 =$203
Inventories this ysear = 7+0.1135* Sales
=7+0.1135*203
=7+23.045 =30.0405
Inventories this year
=7+0.1135*200 =29.7
Average Invesntory =29.87
Invesnotry turnover = net sales/Average invesnory
= 203/29.87
=6.79