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Kamath Meier Corporation's CFO uses this equation, which was developed by regressing inventories on sales over...

Kamath Meier Corporation's CFO uses this equation, which was developed by regressing inventories on sales over the past 5 years, to forecast inventory requirements: Inventories = $22.0 + 0.125(Sales). The company expects sales of $400 million during the current year, and it expects sales to grow by 30% next year. What is the inventory forecast for next year? All dollars are in millions.

a. $74.6

b. $78.5

c. $82.7

d. $87.0

e. $91.4

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Answer #1

d. $87.0

Projected Sales = $400 million + ($400 million × 30%) = $520 million

Required inventories = $22.0 + 0.125(Projected Sales)

Required inventories = $22.0 + 0.125($520)

Required inventories = $87.0

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