Scenario Analysis
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 |
Specially, the following critical elements must be addressed;
Main elements:
Are there factors other than interest rate charged for a loan that the finance manager should consider in predicting future car sales?
Integration and Application:
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%.
Analysis:
As finance manager, what reasons would you convey to the vice-president in recommending this forecasting model?
Critical Thinking
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?
Analysis of this scenario should be 1-2 page Microsoft word document with double spacing and 12 point Times New Roman font
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