Charlie’s Cycles Inc. has $110 million in sales. The companyexpects that its sales will increase 5% this year. Charlie’s CFO uses a simple linearregression to forecast the company’s inventory level for a given level of projected sales. On the basis of recent history, the estimated relationship between inventories and sales (inmillions of dollars) is as follows:Inventories = $9 + 0.0875(Sales)Given the estimated sales forecast and the estimated relationship between inventories andsales, what are your forecasts of the company’s year-end inventory level and its inventoryturnover ratio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 14P
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Charlie’s Cycles Inc. has $110 million in sales. The company
expects that its sales will increase 5% this year. Charlie’s CFO uses a simple linear
regression to forecast the company’s inventory level for a given level of projected sales.

On the basis of recent history, the estimated relationship between inventories and sales (in
millions of dollars) is as follows:
Inventories = $9 + 0.0875(Sales)
Given the estimated sales forecast and the estimated relationship between inventories and
sales, what are your forecasts of the company’s year-end inventory level and its inventory
turnover ratio?

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