Question

Fairchild Garden Supply expects $700 million of sales this year, and it forecasts a 15% increase for next year. The CFO uses this equation to forecast inventory requirements at different levels of sales: Inventories = $30.2 + 0.25(Sales). All dollars are in millions. What is the projected inventory turnover ratio for the coming year? a. 3.48 times b. 2.82 times c. 2.78 times d. 4.35 times
A. 2.78 times

B. 2.82 times

C. 4.35 times

D. 3.79 times

E. 3.48 times

Answer 1

Answer:

D) 3.48

Explanation:

Current Year Sales = $700

Growth rate = 15%

Projected Sales=$700*15% +$700

Which is $805

Required inventory = $30.2 + 0.25*projected sales

Req.Inv = $30.2 + 0.25($805)

Req.Inv = $231.45

Inventory turn over = projected sales/Req.inv

$805/$231.45

Inventory turn over = 3.48 times