Financial Risk Manager Part 1
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Quarter 1 sales for an automobile manufacturer were $180 million. If the quarter 1 seasonal index was 1.8, what is the estimate of annual sales for this firm?
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NNikitesh
A
$400 million
B
$180 million
C
$720 million
D
$100 million
Explanation:
Explanation:
A seasonal index of 1.8 means that Quarter 1 sales are 80% above the average quarterly sales (since an index of 1.0 represents the average).
Step 1: Calculate average quarterly sales
- Quarter 1 sales =
$180million - Seasonal index = 1.8
- Average quarterly sales = Quarter 1 sales ÷ Seasonal index
=
$180million ÷ 1.8 =$100million
Step 2: Calculate annual sales estimate
- Annual sales = Average quarterly sales × 4 quarters
=
$100million × 4 =$400million
Therefore, the correct answer is $400 million.
The provided explanation in the text confirms this calculation:
"An index of 1.8 means that quarter 1 sales are 80% above the norm (average). Thus, each quarter has average sales worth $180,000,000 / 1.8 = $100,000,000. Therefore, the annual estimate = 4 * Quarter average = 4 * $100,000,000 = $400,000,000."
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