Homework 5

Use Excel’s Data Analysis to do the calculations for this homework. However, I want to see the results of your analysis, so include the output of the Excel macros as worksheets in your Excel data file (printed or on CD).

Background:

One day, after reporting the performance of the company to the shareholders, the CEO of A. Fictitious & Co. decided that he would like to quantify the impact of the company’s expenditures has on how much sales it generates. In other words, he would like to know if the company increases the amount spent on marketing by one dollar, how large of an increase (or decrease) in sales would be expected? The major categories of expenditures and how much was spent in each are known for the company, as is the total sales generated per quarter for the last five years. He has the data file with the relevant data sent to you, and asks you to do the multiple-regression analysis to find out the answer to his questions. Oh, and he also asks you to do a time-series analysis on the total sales per quarter and forecast the amount of sales expected in the future.

Part I . Multiple Regression:

1. Look over the expenditure categories that the CEO gave you. Would you expect an interaction between the category Capital Equipment and Materials, and the category Salary and Expenses? Are the two independent of each other? Check to see if the data contains this interaction.
   2. Based on the categories in your data file and the results of your analysis in question 1, write down the multiple regression equation for this problem with quarterly sales as the y-variable and the expenditure categories as the x-variables; do not forget the interaction term if there is one. Define each variable in the equation.
2. Answer the CEO’s question. Namely, for each the four categories of expenditure (marketing, R&D, equipment and supplies, and salaries and benefits), if the CEO increases spending in one category by one million dollars (holding the others fixed), how much increase in sales should he expect? If you found an interaction term, explain its effects as well.
3. Being a very cautious person, you decide to also give the CEO the confidence intervals for the rates of increase your calculated in question 3. Calculate the 95% confidence intervals for the slopes you calculated in question 2, including the interaction term if you found one.
4. Being even more cautious—you are reporting the results to the CEO, after all—you decide to do a residual error analysis by applying the F-Test on the entire regression model. Do so, and interpret the results.
   Part II. Time-series Analysis
   The CEO noticed that he has five years of quarterly sales data in hand, and they form a time series. He decided to also ask you to perform time-series analysis on it, and use it to forecast what future sales are expected to be at the end of 4Q 2007.
5. Plot the quarterly sales as a function of time in your Excel data spreadsheet, and determine what type of trend model would be suitable for this data. Write down the equation for the trend model, and define and explain each of the variables as it applies to this problem.
6. Do a simple regression analysis on the data for this trend model, and determine the parameters for the model.
7. Answer the CEO’s question. Tell him how much sales are expected to be at the end of 4Q 2007. Be careful, and also include the 95% confidence interval for this number.

Part III . Report

Write a report to the CEO of your findings. Which expenditure has the largest impact on sales, and which one has the least impact on sales? How fast do you expect sales to increase in time?

Part IV. Limitations

When tasked to do this analysis, the CEO made a number of assumptions about the data, and what can be extrapolated from it. List down the assumptions he made, and criticize each assumption. Criticize also the conclusions that you drew from your analysis for your report to the CEO. As a starting point, remember that the data covered a period of five years .

Price: $23.21

Solution: The downloadable solution consists of 9 pages, 1421 words and 3 charts.
Deliverable: Word Document