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Moving Expenses:

Fiscal Year Expenses

20X2 $5,500,000

20X3 $6,000,000

20X4 $6,750,000

20X2-4 $18,250,000

20X5 $18,250,000/3 = $6,083,333

Weighted Expenses:

Fiscal Year Expenses Weight Weighted Score

20X2 $5,500,000 x 1 = $5,500,000

20X3 $6,000,000 x 2 = $12,000,000

20X4 $6,750,000 x 3 = $20,250,000 6 $37,750,000

20X5 $37,750,000/6 = $6,291,667

Exponential Smoothing:

Given

The last forecasting (LF) = $6,300,000, the last data (LD) = $6,750,000, a = 0.95

I have used the 0.95 alpha because I believe the new forecast will be based on the last data.

NF = LF + a (LD – LF)

NF= $6,300,000 + 0.95 ($6,750,000 - $6,300,000)

NF = $6,300,000 + 0.95 ($450,000)

NF = $6,300,000 + $427,500

NF = $6,727,500

20X5 = $6,727,500

Time Series Regression:

Computer Output

Constant = 4625000

Variable = 500000

R-Square = 0.95

Y = A + BX

Y = $462,500 + $500,000X

Y = $462,500 + $500,000 (5)

Y = $462,500 + $2,500,000

Y = $7,125,000

20X5 = $7,125,000

I choose to use the time series regression because it reveals that the expenses will continue to grow on 20X5 and the years after 20X5.

Exercise 9.3

Moving Expenses:

Fiscal Year Expenses

20X2 $14,250,000

20X3 $14,000,000

20X4 $13,500,000

20X2-4 $41,750,000

20X5 $41,750,000/3 = $13,916,667

Weighted Averages:

Fiscal Year Expenses Weight Weighted Score

20X2 $14,250,000 x 1 = $14,250,000

20X3 $14,000,000 x 2 = $28,000,000

20X4 $13,500,000 x 3 = $40,500,000 6 $82,750,000

20X5 $82,750,000/6 = $13,791,667

Exponential Smoothing:

Given

The last forecasting (LF) = $13,000,000, the last data (LD) = $13,500,000, a = 0.95

I have used the 0.95 because I believe the new forecast will be based on the last data.

NF = LF + a (LD – LF)

NF = $13,000,000 + 0.95 ($13,500,000 - $13,000,000)

NF = $13,000,000 + 0.95 ($500,000)

NF = $13,000,000 + $475,000

NF = $13,475,000

20X5 = $13,475,000

Time Series Regression:

Computer Output

Constant = 15750000

Variable = 750000

R-Square = 0.95

Y = A + BX

Y = $15,750,000 + $750,000X

Y = $15,750,000 + $750,000 (5)

Y = $15,750,000 + $3,375,000

Y = $19,500,000

20X5 = $19,500,000

I choose to use the time series regression because it reveals that the expenses will continue to grow on 20X5 and the years after 20X5.

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