Canton Supplies, Inc., is a service firm that employs approximately 100 people. Because of the necessity of meeting monthly cash obligations, the chief financial officer wants to develop a forecast of monthly cash requirements. Because of a recent change in equipment and operating policy, only the past seven months of data are considered relevant. The change in operations has had a great impact on cash flow. What forecasting model do you recommend? Use the Moving Average and Exponential Smoothing Excel templates or other Excel tools to help you answer this question.

Cash RequiredCash RequiredMonth($1,000)Month($1,000)1189523522106244322372034255

Find the best number of months to use in a moving average forecast based on MSE. Do not round intermediate calculations. Round your answers to two decimal places.

Number of monthsMSE234

The -Select-2-month moving average3-month moving average4-month moving averageItem 4 model is the best.

Find the best single exponential smoothing model by evaluating the MSE from 0.1 to 0.9, in increments of 0.1. Do not round intermediate calculations. Round your answers to two decimal places.

AlphaMSE0.10.20.30.40.50.60.70.80.9

The model based on a smoothing constant of -Select-0.10.20.30.40.50.60.70.80.9Item 14 is the best.

Build the linear regression model and calculate the MSE. Do not round intermediate calculations. Round your answers to two decimal places.

The regression model is Cash Required = + (Month). The MSE is .

How does the best single exponential smoothing model compare with the best moving average model and the linear regression model?

The -Select-single exponential smoothingmoving averagelinear regressionItem 18 model has the lowest MSE.