Scenario Analysis

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Mathematics

Description

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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Explanation & Answer

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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?
There are many other factors to be considered for predicting future car sales. The factors include
the price of the car, type of the car, oil prices, mileage of ...


Anonymous
Excellent resource! Really helped me get the gist of things.

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