Kenneth McCoin, CFA, is a fairly tough interviewer. Last year, he handed each job applicant a sheet of paper with the information in the following table, and he then asked several questions about regression analysis. Some of McCoin’s questions, along with a sample of the answers he received to each, are given below. McCoin told the applicants that the independent variable is the ratio of net income to sales for restaurants with a market cap of more than $100 million and the dependent variable is the ratio of cash flow from operations to sales for those restaurants. Which of the choices provided is the best answer to each of McCoin’s questions?
Regression Statistics
Multiple R…………………….0.8623
R-squared……………………..0.7436
Standard error…………………0.0213
Observations…………………….24
If the ratio of net income to sales for a restaurant is 5 percent, what is the predicted ratio of cash flow from operations to sales?
A. 0.007 + 0.103(5.0) = 0.524.
B. 0.077 0.826(5.0) = 4.054.
C. 0.077 + 0.826(5.0) = 4.207.
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