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 Required		Cash Required
Month	($1,000)	Month	($1,000)
1	193	5	231
2	216	6	243
3	224	7	203
4	260

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 months		MSE
2
3
4

The -4-month moving average 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.

Alpha	MSE
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9

The model based on a smoothing constant of 0.7 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 -linear regression model has the lowest MSE.