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

question 65

Multiple Choice

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.
$\begin{array}{ll}\text { Model } 1 \\\text { Regression Statistics } \\\hline \text { R Square }& 0.8080 \\\text { AdjustedR S quare }& 0.7568 \\\text { Observations } &20 \end{array}$

ANOVA
$\begin{array}{lrrccc} & \text { df } &{S S} & M S & F & \text { Signuficance F } \\\hline \text { Regression } & 4 & 169503.4241 & 42375.86 & 15.7874 & 2.96869 E-05 \\\text { Residual } & 15 & 40262.3259 & 2684.155 & & \\\text { Total } & 19 & 209765.75 & & & \\\hline\end{array}$

$\begin{array}{lrrrrrrr} && \text { Standard } & & \text {Lower} & \text {Upper }\\& \text {Coefficients} & \text {Error} & \text { t Stat } & \text {p -value} & 90.0 \% & 90.0 \% \\ \hline \text { Intercept }& 421.4277 & 77.8614 & 5.4125 & 7.2 \mathrm{E}-05& 284.9327 & 557.9227 \\ \text { X{1} (Temperature) } & -4.5098 & 0.8129 & -5.5476 &5.58 \mathrm{E}-05 & -5.9349 & -3.0847 \\ \text {X{2} (Insulation) }& -14.9029 & 5.0508 & -2.9505 & 0.0099 & -23.7573 & -6.0485 \\ \text { X{3} (Windows) }& 0.2151 & 4.8675 & 0.0442 & 0.9653 & -8.3181 & 8.7484 \\ \text { X{4} (Furnace Age) } & 6.3780 & 4.1026 & 1.5546 & 0.1408 & -0.8140 & 13.5702 \\\hline\end{array}$

$\begin{array}{ll} \text { Model 2} \\\hline \text {Regression Statistics} \\\hline \text {R Square }& 0.7768\\ \text {Adjusted R Square }&0.7506 \\ \text {Observations }& 20 \\\hline\end{array}$
ANOVA
$\begin{array}{lrrrcc}\hline & \text { d f} & \text { SS } & \text { MS } & \text {SS } & \text {Significance F } \\\hline \text {Regression} & 2 & 162958.2277 & 81479.11 & 29.5923 & 2.9036 \mathrm{E}-06 \\ \text {Residual }& 17 & 46807.5222 & 2753.384 & & \\ \text {Total }& 19 & 209765.75 & & & \\\hline\end{array}$

$\begin{array}{lcccccc} && \text { Standard } & &\text { Lower} &\text { Upper} \\& \text {Coefficients }&\text { Error }&\text { t Stat }& \text { p -value} &95 \%& 95 \% \\\hline \text {Intercept }& 489.3227 & 43.982611 .1253 &3.17 \mathrm{E}-09& 396.5273 & 582.1180 \\\text { X{1} (Temperature) }& -5.1103 & 0.6951-7.3515 & 1.13 \mathrm{E}-06 & -6.5769 & -3.6437 \\\text { X{2} (Insulation) }& -14.7195 & 4.8864-3.0123 & 0.0078 & -25.0290 & -4.4099 \\\hline\end{array}$

-Referring to Table 14-6, what can we say about Model 1?

Learn how to compute the margin of safety and its implications for business stability.

Grasp the concept and calculation of contribution margin and contribution margin ratio.

Understand how changes in sales volume, prices, and costs affect net income.

Learn to calculate and interpret the degree of operating leverage.

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Definitions:

Psychophysicists

Scientists who study how physical stimuli (e.g., light, sound) are translated into psychological experiences, focusing on the relationships between physical properties of stimuli and sensory perceptions.

Experiments

Controlled tests or investigations conducted to discover or test a hypothesis.

Subjective Evaluation

An assessment based on personal opinions, feelings, or tastes, rather than external facts or criteria.

Signal-Detection Theory

A means to quantify the ability to discern between information-bearing patterns and random patterns that distract from the information.