Are there factors other than interest rate charged for a loan that

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 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 (%)

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

 

 

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