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QSO 510 Module 4-2 Scenario Analysis Cars Sold

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Author: Jean Brunner
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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?

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