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.
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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.
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Regression Statistics
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|
Multiple R
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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?
Guidelines for Submission: Your analysis of the scenario must be submitted as a 1- to 2-page Microsoft Word document with double spacing and 12-point Times New Roman font (APA style).