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


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?

For additional details, please refer to the Scenario Analysis Guidelines and Rubric document.

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