Arctic Cat Inc. was the world's second-largest manufacturer of snowmobiles and had experienced exceptional growth in recent years. It planned for a major increase in sales in the following period by increasing production dramatically. Unfortunately, North America experienced less snow that year than in any of the preceding 25 years. As a consequence, sales remained flat, and Arctic reported a loss of \(\$ 9.5\) million. However, its inventory balance increased by \(\$ 6\) million. Based on the following information, answer the questions that follow:Required:

1. Compute the inventory turnover ratio based on two different assumptions:

a. Those presented in the preceding table.

b. No change from the beginning of the year in the inventory balance.

2. Compute the effect of the change in the balance in inventory on cash flow from operating activities for the year (show the sign and amount of the effect).

3. On the basis of your analysis, write a brief memo explaining how a decrease in inventory turnover can result in a decrease in cash flow from operating activities.

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Inventory Cost of sales (in thousands) Beginning of Year $120,804 End of Year $126,981 Current Year $480,441