Chapter 17, Problem 6P

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Chapter
Section

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

# REGRESSION AND INVENTORIES Jasper Furnishings has $300 million in sales. The company expects that its sales will increase 12% 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 as follows:Inventories =$25 + 0.125(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 and its inventory turnover ratio?

Summary Introduction

To compute: The sales forecast, year ended inventory and the inventory turnover ratio.

Introduction:

Sales Forecast:

Sales forecast is the important point that arises while making the future plans. The management generally takes 5 years financial records and then studies it and decides the amount of turnover for the current and upcoming years.

Explanation

Given information:

Sales are $300 million. Increase in sales by 12% Formula to calculate the sales forecast is, Salesforecast=Sales+Increaseinsales Substitute$300 for sales and 12% for increase in sales in the above equation.

SalesForecast=$300 million+($300 million×12%)=$300 million+$36 million=$336 million Formula to calculate inventory given in question is, Inventories=$25million+0.125(Sales)

Substitute $336,000,000 for sales in the above equation Inventories=$25 million+0

### Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

#### The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started