Managerial Report: Finding the Best Car Value Essay

1389 WordsAug 2, 20146 Pages
Managerial Report: Finding the Best Car Value I. Cost/Mile vs. Car Size Let us begin this report by examining how closely related Cost/Mile is to the Size of the car being tested. To do this, a multiple regression analysis was run using Cost/Mile as the dependent variable, and the ‘dummy’ variables Family-Sedan and Upscale-Sedan as independent variables. In examining the results, the first thing we notice is the “R Square” value is 0.7471. This represents the multiple coefficient of determination (r2), which is basically a measure of goodness of fit of the equation estimated by the analysis. This means that the size of the car roughly accounts for 74.6% of the variance in the cost-per-mile of owning it—which is a rather large…show more content…
Car Value vs. Car Size The fourth part of this report will investigate the claim that “smaller cars provide better values than larger cars,” given the provided data. The claim does not make clear what measurement for determining “values” is to be used, but we will proceed with the assumption that Consumer Report’s Value Score is an accurate representation of real-world value. Because we determined that the Size category and the two related ‘dummy’ variables did not have a significant relationship with the Value Score (which caused their subsequent deletion from the equation), and also because Size is largely represented by Cost/Mile—the choice was made to analyze the coefficient for Cost/Mile to help come to a conclusion. We are going to use the following estimated regression equation (which we constructed in Part III) for our analysis: = 1.252 - 2.0527(Cost/Mile) + 0.0113(Road-Test Score) + 0.1662(Predicted Reliability) As we showed in part I of this report, Car Size accounts for 75% of the variance in Cost/Mile. Because of this—and due to the fact that the Size ‘dummy’ variables were proven insignificant and thus removed—Cost/Mile basically does the job of the Size variable in this equation. The regression analysis we ran and the inferences we can make from it support the fact that smaller cars cost less to drive per-mile than larger cars, but we are