Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The AFN equation and the financial statementforecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets

The AFN equation and the financial statementforecasting approach both assume that assets grow at relatively the same rate as sales. However, the relationship between assets and sales is often a little more difficult than that. In particular, some firms use regression analysis to predict the required assets needed to support a given level of sales. Industrial Automation Co. has used its historical sales and asset data to estimate the following regression equations: Accounts Receivable = $85,230 + 0.237(Sales) Inventories = $10,120 + 0.192(Sales) Industrial Automation Co. currently has sales of $1,230,000, but it expects sales to grow by 20% over the next year. Use the regression models to calculate Industrial Automation Co.s forecasted values for accounts receivable and inventories needed to support next years sales. Forecasted Values for Next Year Accounts receivable Inventories Based on the next years accounts receivable and inventory levels predicted by Industrial Automation Co.s regression equations, the firms DSO for next year is expected to be . Use 365 days as the length of a year in all calculations.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Institutions Management And Investments

Authors: Herbert Mayo

10th International Edition

1111820643, 9781111820640

More Books

Students also viewed these Finance questions

Question

What is the effect of word war second?

Answered: 1 week ago