Question

Regression analysis is a statistical technique that fits a line to observed data points so that the resulting equation can be used to forecast other data points. It is useful in excess capacity and economies of scale situations. Economies of scale occur when the ratio of asset to sales will change as the size of the firm increases. Regression analysis can lead to improved financial forecasts and better information which can be used to improve management's actions. Quantitative Problem: Jasper Jewelry has $150 million in sales. The company expects that its sales will increase 6% 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 - $11 +0.09(Sales) Given the estimated sales forecast and the estimated relationship between inventories and sales, what is your forecast of the company's year-end inventory level? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to two decimal places. $ million

Answer 1

Answer $150 Million Sales 6% Increse $150*1.06 Sales 159 $11 +0.09* Sales Inventories %3D $11+0.09*159 25.31 Millions