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 |
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 in the Assignment Guidelines and Rubrics section of the course.
