4-2 Scenario Analysis- Cars Sold

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Jan 9, 2024

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4-2 Scenario Analysis: Cars Sold Southern New Hampshire University QSO-510-X2467

Interest Rate (%) Number of Cars Sold (100s) 3 10 5 7 6 5 8 2 Regression Statistics Multiple R 0.998868 R 2 0.997738 Coefficient Intercept 14.88462 Interest Rate -1.61538 The Regression Model is Y=a+bX X is Interest rate and Y is number of cars sold. Y= 14.88462 - 1.61538(Interest rates) The data from R 2 needs to be examined first because it measures how close the data is to the regression line. With an R 2 of 0.997, this model is the best model. It can be concluded that the finance manager does not to consider other factors since we have 99.78% variation is due to the interest rate. The interest rate charged for a loan is the most important factor to be considered when predicting future car sales since it has a good coefficient of determination of R2. However, there are other factors other than the interest rate charged for a loan that the finance manager can consider in predicting the future car sales. Financial managers need to consider factors such as car prices, fuel prices, maintenance costs, per capita income in the economy, and the cost of alternatives like biking or buses. The dealership's vice-president of marketing has requested a sales forecast at the prevailing interest rate of 7%.

Forecasting the number of cars when interest rate is 7%: Y= 14.88462 -1.61538(Interest rates) Y= 14.88462 -1.61538(7) Y= 14.7715 (round up to 15) Y= 3.57696 x100 Y= 357.696 (round up to 358) As the interest rises, the number of sold cars decreases. If the interest is at 7%, the demand will be for 358 cars. As a finance manager, I would recommend this forecast model to the vice-president because this tool shows that the interest rates are the most important factor that determines the demand for cars. This is what drives customers and sales. Other factors are less important to businesses because they have less impact on customer decisions, and the overall economy than changes in economic interest rates. The prediction of car sales at 7% is the reflection of the current downturn in the economy. If the interest rate trend continues to rise, the business will lose money in the short term and possibly in the long term.

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