Question

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?

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We know that Jasper Furnishings has $300\$300 million in sales, with a 12% increase expected this year.

The problem also gives us that Inventories =$25,0000,000\$25,0000,000+0.125(sales)

With this in mind we can determine what sales will be for this next year and then plug that number into inventory equation to find out what the year end inventory level will be.

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