Suppose that Kamath-Meier Corporation's CFO uses this equation,which was developed by regressing inventories on sales over the past 5 years,to forecast inventory requirements: Inventories = $22.0 + 0.125(Sales).The company expects sales of $400 million during the current year,and it expects sales to grow by 30% next year.All dollars are in millions.What is the inventory forecast for next year?
A)$74.6
B)$78.5
C)$82.7
D)$87.0

Question

Quizplus · Accepted Answer

First, calculate next year's sales: $400 million * 1.30 (30% growth) = $520 million. Then, use the given equation to forecast inventory: Inventories = $22.0 + 0.125($520) = $22.0 + $65.0 = $87.0 million.

Suppose That Kamath-Meier Corporation's CFO Uses This Equation,which Was Developed