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Regression analysis and forecasting

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6. Finley Heaters Inc. is a mid-sized manufacturer of residential water heaters. Sales have grown during the last several years, and the company's production capacity needs to be increased. The company's management wonders if 'national housing starts' might be a good indicator of the company's sales:

National Housing Starts Annual Sales
Year (millions) (millions)
1 6.2 57
2 5.1 59
3 6.5 65
4 7.9 78
5 6.3 72
6 7.4 80
7 7 86

A) Develop a simple linear regression analysis between Finley Heaters' sales and national housing starts. Forecast Finley Heaters' sales for the next two years. The National Home Builders Association estimates that 'National housing starts' will be 7.1 million and 8.0 million for the next two years.

B) What percentage of variation in Finley Heaters' sales is explained by national housing starts?

C) Would you recommend that Finley Heaters management use the forecast from Part a to plan facility expansion? Why or why not? What could be done to improve the forecast?

see attached problem.

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Solution Summary

Uses regression analysis to forecast Finley Heaters' sales using national housing starts as the independent variable.

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