4-2 Scenario Analysis: Cars Sold
4-2 Scenario Analysis: Cars Sold
Instructions
A finance manager employed by an automobile dealership believes that the number of cars sold in his local market can be predicted by the interest rate charged for a loan.
| Interest Rate (%) | Number of Cars Sold (100s) |
| 3 | 10 |
| 5 | 7 |
| 6 | 5 |
| 8 | 2 |
The finance manager performed a regression analysis of the number of cars sold and interest rates using the sample of data above. Shown below is a portion of the regression output.
| Regression Statistics | |
| Multiple R | 0.998868 |
| R2 | 0.997738 |
| Coefficient | |
| Intercept | 14.88462 |
| Interest Rate | -1.61538 |
- Are there factors other than interest rate charged for a loan that the finance manager should consider in predicting future car sales?
- Is interest rate charged for a loan the most important factor to be considered in predicting future car sales? Explain your reasoning.The dealership’s vice-president of marketing has requested a sales forecast at the prevailing interest rate of 7%.
- As finance manager, what reasons would you convey to the vice-president in recommending this forecasting model?
- Is the prediction of car sales at 7% a reflection of the current downturn in the economy? How might this impact the dealership’s business?
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