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TABLE 14-6 One of the Most Common Questions of Prospective House Buyers

question 37

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TABLE 14-6
One of the most common questions of prospective house buyers pertains to the average cost of heating in dollars (Y) . To provide its customers with information on that matter, a large real estate firm used the following 4 variables to predict heating costs: the daily minimum outside temperature in degrees of Fahrenheit (X1) , the amount of insulation in inches (X2) , the number of windows in the house (X3) , and the age of the furnace in years (X4) . Given below are the EXCEL outputs of two regression models.
Model 1
TABLE 14-6 One of the most common questions of prospective house buyers pertains to the average cost of heating in dollars (Y) . To provide its customers with information on that matter, a large real estate firm used the following 4 variables to predict heating costs: the daily minimum outside temperature in degrees of Fahrenheit (X<sub>1</sub>) , the amount of insulation in inches (X<sub>2</sub>) , the number of windows in the house (X<sub>3</sub>) , and the age of the furnace in years (X<sub>4</sub>) . Given below are the EXCEL outputs of two regression models. Model 1 Note: 2.96869E-05 = 2.96869×10<sup>-5</sup> Model 2 Note: 2.9036E-06 = 2.9036×10<sup>-6</sup> -Referring to Table 14-6, what is your decision and conclusion for the test H<sub>0</sub> : β<sub>2</sub> = 0 vs. H<sub>0</sub> : β<sub>2</sub> < 0 at the α = 0.01 level of significance using Model 1? A) Do not reject H<sub>0 </sub>and conclude that the amount of insulation has a linear effect on heating costs. B) Reject H<sub>0 </sub>and conclude that the amount of insulation does not have a linear effect on heating costs. C) Reject H<sub>0 </sub>and conclude that the amount of insulation has a negative linear effect on heating costs. D) Do not reject H<sub>0 </sub>and conclude that the amount of insulation has a negative linear effect on heating costs. Note: 2.96869E-05 = 2.96869×10-5
Model 2
TABLE 14-6 One of the most common questions of prospective house buyers pertains to the average cost of heating in dollars (Y) . To provide its customers with information on that matter, a large real estate firm used the following 4 variables to predict heating costs: the daily minimum outside temperature in degrees of Fahrenheit (X<sub>1</sub>) , the amount of insulation in inches (X<sub>2</sub>) , the number of windows in the house (X<sub>3</sub>) , and the age of the furnace in years (X<sub>4</sub>) . Given below are the EXCEL outputs of two regression models. Model 1 Note: 2.96869E-05 = 2.96869×10<sup>-5</sup> Model 2 Note: 2.9036E-06 = 2.9036×10<sup>-6</sup> -Referring to Table 14-6, what is your decision and conclusion for the test H<sub>0</sub> : β<sub>2</sub> = 0 vs. H<sub>0</sub> : β<sub>2</sub> < 0 at the α = 0.01 level of significance using Model 1? A) Do not reject H<sub>0 </sub>and conclude that the amount of insulation has a linear effect on heating costs. B) Reject H<sub>0 </sub>and conclude that the amount of insulation does not have a linear effect on heating costs. C) Reject H<sub>0 </sub>and conclude that the amount of insulation has a negative linear effect on heating costs. D) Do not reject H<sub>0 </sub>and conclude that the amount of insulation has a negative linear effect on heating costs. Note: 2.9036E-06 = 2.9036×10-6
-Referring to Table 14-6, what is your decision and conclusion for the test H0 : β2 = 0 vs. H0 : β2 < 0 at the α = 0.01 level of significance using Model 1?

Definitions:

Major Overhaul

Significant restorations or renovations to an asset, often extending its life or improving its efficiency.

Non-Cancelable

A contract or policy clause that safeguards against cancellation before a specified date, ensuring a degree of stability or guarantee.

Service Life

The estimated period during which an asset is expected to be usable for its intended purpose, affecting depreciation calculations.

Fair Value

An estimate of a security's worth on a given market based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller.

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