# Scenario Analysis

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