The Table Below Shows the Age and Annual Income of 12

question 23

Multiple Choice

The table below shows the age and annual income of 12 randomly selected college graduates all living in the city of Seattle.
$\begin{array}{l}\begin{array} { l c } \text { Age } & \text { Annual Income (dollars } \\\hline 26 & 28,520 \\31 & 36,750 \\55 & 72,155 \\47 & 43,225 \\38 & 34,197 \\50 & 60,030 \\29 & 25,005 \\23 & 31,625 \\33 & 55,975 \\40 & 37,064 \\52 & 75,082 \\25 & 19,055\end{array}\\\text { The scatterplot and regression line are graphed below: }\end{array}$

Would it be reasonable to use the regression equation to predict the annual income of a college Graduate in Seattle who is 90 years old? Explain your answer.

• A)No; 90 year olds are outside the age range of the data.
• B)No; the regression line does not fit the data very closely.
• C)No; regression equations can not be used to predict values for which there is no input data.
• D)Yes; the regression line fits the data quite closely.

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Definitions:

DCF Approach

The Discounted Cash Flow approach, a valuation method used to estimate the value of an investment based on its future cash flows.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, often calculated using the Capital Asset Pricing Model (CAPM).

WACC Calculation

The process of determining a company's Weighted Average Cost of Capital, incorporating the costs of equity, debt, and any other forms of financing.

Semiannually

Occurring twice a year, generally used in the context of payments, interest accruals, or reports.