The AFN equation and the financial statement$-$forecasting 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.

Corellian Engineering Corp. has used its historical sales and asset data to estimate the following regression equations:

$\backslash$table$[[$Accounts Receivable,$=-$$$95,420+0\mathrm{.}225($Sales$)],[$Inventories$,=$$$9,900+0\mathrm{.}223($Sales$)]]$

Corellian Engineering Corp. currently has sales of $$1,110,000,$ but it expects sales to grow by $15\%$ over the next year. Use the regression models to calculate Corellian Engineering Corp.$\text{'}$s forecasted values for accounts receivable and inventories needed to support$]$next year's sales.

Forecasted Values for Next Year

Accounts receivable

Inventories

Based on the next year's accounts receivable and inventory levels predicted by Corellian Engineering Corp.$\text{'}$s regression equations, the firm's DSO for next year is expected to be Use $365$ days as the length of a year in all calculations.