CMA Intermediate · Financial Management and Business Data Analytics · Introduction to Data Science for Business Decision-making
A firm fits a simple linear regression of monthly sales (Y, in ₹ lakh) on advertising spend (X, in ₹ lakh) and obtains Y = 40 + 5X. If the firm plans an advertising spend of ₹ 6 lakh next month, the predicted sales are:
Predicted sales are ₹ 70 lakh. Putting advertising spend of ₹ 6 lakh into the regression equation gives 40 + 5 × 6 = 70. The intercept of 40 is the sales level at zero spend, and each ₹ 1 lakh of spend adds ₹ 5 lakh.
- A₹ 46 lakh
- B₹ 70 lakhCorrect
- C₹ 30 lakh
- D₹ 200 lakh
Explanation
Substitute X = 6: Y = 40 + 5 × 6 = 40 + 30 = ₹ 70 lakh. Option A adds 6 to the intercept only (40 + 6). Option D multiplies 40 by 5 and ignores the spend.
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