Scenario Analysis: Cars Sold
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 (%)
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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
1 -Are there factors other than interest rate charged for a loan that the finance manager should consider in predicting future car sales?
2 -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%.
3 -As finance manager, what reasons would you convey to the vice-president in recommending this forecasting model?
4 -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?
Specifically, the following critical elements must be addressed:
1-Main Elements
2-Integration and Application
3-Analysis
4-Critical Thinking
