Question

USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Assume that you are an analyst for the U.S. Autoparts industry. Consider the following information that you propose to use to obtain an estimate of year 2002 EPS for the U.S. Autoparts Industry Year 2003 Estimated Year 2004 Personal consumption expenditures $6,800 billion Personal consumption expenditures growth 1.5% Industry Sales per share $525 Industry Operating profit margin 15% Industry Depreciation/Fixed Assets 8.25% Industry Fixed asset turnover 3 Interest rate 6% Industry Total asset turnover 1.2 Industry Debt/Total assets 45% Industry Tax rate 36% In addition a regression analysis indicates the following relationship between growth in industry sales per share and personal consumption expenditures (PCE) growth is %D Sales per share = 0.02 + 1.5(%D PCE) Refer to Exhibit 13-1. Estimate the industry sales per share for the year 2004. a. $574.9 b. $550 c. $625 d. $600.0 e. $585.03

Answer 1

A 4.25% increase in sales per share from the 2003 figure of $525, leading to an estimated sales per share of approximately $547. The closest option provided is $550 (option b).

Step-by-step explanation:

To estimate the industry sales per share for the year 2004 for the U.S. Autoparts Industry, we'll use the provided regression analysis. The analysis shows that the change in industry sales per share (%D Sales per share) is a function of the change in personal consumption expenditures (%D PCE) with a given formula of %D Sales per share = 0.02 + 1.5(%D PCE).

The personal consumption expenditures (PCE) are expected to grow by 1.5% in 2004. Applying this growth rate of 1.5% to the regression formula gives us: %D Sales per share = 0.02 + 1.5(1.5%) = 0.02 + 1.5 * 0.015 = 0.02 + 0.0225 = 0.0425 or 4.25%.

To find the actual sales per share for the year 2004, we take the previous year's sales per share which is $525 and increase it by the percentage change: $525 * (1 + 0.0425) = $525 * 1.0425 = $547.3125.

Thus, when rounded to nearest dollar, the estimated sales per share for the year 2004 is $547. Looking closely, the answer that matches this calculation is not directly listed, so we would have to choose the closest given option which is $550 (option b).