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. Year National Housing Starts (millions) Finley Heaters’ Annual Sales (millions of dollars) 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 7.0 86 a. Forecast Finley Heaters’ sales for the next two years using time series (6 Marks) b. Develop a simple linear regression analysis between Finley Heaters’ sales and national housing starts and 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. (6 Marks) c. What percentage of variation in Finley Heaters’ sales is explained by national housing starts? (5 Marks) d. Which variable would you recommend that Finley Heaters management use to plan facility expansion? Why or why not? (8 Marks)
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