Under What Circumstances Does the Variance Inflation Factor Signal That

question 25

Multiple Choice

Under what circumstances does the variance inflation factor signal that multicollinearity may be a problem?

• A) When the value of VIF exceeds the size of the sample from which the regression model was developed
• B) When the VIF value is approximately 1.0
• C) When the VIF is greater than or equal to 5
• D) When the VIF is a negative value

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Definitions:

Break-Even Sales

The amount of revenue needed to cover total costs, at which point a business neither makes a profit nor incurs a loss.

Margin of Safety

Represents the difference between actual or planned sales and the break-even sales, indicating the amount by which sales can drop before the business incurs a loss.

Contribution Margin Ratio

A financial metric that measures the proportion of sales revenue that exceeds variable costs, indicating how much revenue contributes to fixed costs and profit.

Variable Costs

Costs that vary in direct proportion to changes in levels of an activity or production volume.