For Each of 200 Randomly Selected Cities, Pete Recorded the Number

question 27

Essay

For each of 200 randomly selected cities, Pete recorded the number of churches in the city (x)and the number of homicides in the past decade (y). He calculated the linear
correlation coefficient and was surprised to find a strong positive linear correlation for the
two variables. Does this suggest that building new churches causes an increase in the number
of homicides? Why do you think that a strong positive linear correlation coefficient was
obtained? Explain your answer with reference to the term lurking variable.

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Definitions:

Stand-Alone Principle

A method of evaluating a project or investment by analyzing its viability and potential profitability as if it were the only project the company is undertaking.

Incremental Costs

Additional costs that a company incurs when increasing production or undertaking new projects.

Pro Forma Financial Statements

Financial reports that project the future financial position of a company, based on current data and assumptions.

EAC Methodology

The Equivalent Annual Cost method, used to compare the economic cost of projects with different lifespans by converting their costs into an equivalent annual amount.