Southside Hospital Is Trying to Get a Better Idea of the Costs

question 30

Essay

Southside Hospital is trying to get a better idea of the costs in its cardiac surgical unit. Unit cost data for supplies, labor, etc. have been collected for a three-year period. After analyzing the data using Excel, the following output was generated, based on 1,500 procedures.

Intercept = $2,169, 000
Coefficient on procedures $972
Correlation coefficient = 0.448
R² = 0.189
The controller asks you for advice on whether to rely on this estimate. Based on the output, what would you say?

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Definitions:

Clientele Effect

A theory suggesting that the types of investors attracted to a company depend on the company's dividend policy and related tax treatments.

Compromise Dividend Policy

A strategy that aims to balance between retaining earnings for reinvestment and paying dividends to shareholders.

Residual Dividend Approach

A policy for determining dividend payments whereby dividends are set as the earnings left over after funding the company's capital expenditure and working capital needs.

Trading Range

The spread between the high and low prices at which a security trades over a certain period of time.