A CPA Firm Has Been Using the Following Equation to Predict

Essay

A CPA firm has been using the following equation to predict annual demand for tax audits: Y_t = 55 + 4t. Demand for the past few years is shown below. Is the forecast performing as well as it might? Explain. $$\begin{array} { l l l l c l l } \text { Year } & 2 & 3 & 4 & 5 & 6 & 7 \\\hline \text { Demand } & 60 & 65 & 69 & 76 & 85 & 85 \\\end{array}$$

$$\begin{array} { l l l l c l l } \mathrm { t } & \text { Demand } & \text { Forecast } & \mathrm { D } - \mathrm { F } & \mathrm { e } ^ { 2 } & \\\hline 2 & 60 & 63 &\ - 3 & 9 & \\3 & 65 & 67 & - 2 & 4 & \\4 & 69 & 71 & - 2 & 2 & \\5 & 76 & 75 & + 1 & 1 & \\6 & 85 & 79 & + 6 & 36 & \\7 & 85 & 83 & + 2 & 4 &\end{array}$$