A Researcher Has Developed the Following Regression Equation to Predict

question 127

Multiple Choice

A researcher has developed the following regression equation to predict the prices of luxurious Oceanside condominium units, = 40 + 0.15Size + 50View, where Price is the price of a unit (in $1,000s) , Size is the square footage (in sq. feet) , and View is a dummy variable taking on 1 for an ocean view unit and 0 for a bay view unit. Which of the following is the predicted price of a bay view unit measuring 1,500 square feet?

• A) $315,000
• B) $50,000
• C) $265,000
• D) $40,000

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Definitions:

Discount Rate

The interest rate charged by central banks for lending money to commercial banks or the rate used in discounted cash flow analysis to determine the present value of future cash flows.

Project Profitability Index

A financial metric that calculates the ratio between the present value of future cash flows and the initial investment of the project.

Profitability Index

A financial metric that measures the relative profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.

Investment Projects

Initiatives undertaken by companies or individuals to allocate capital in ways expected to yield returns or gains over time, such as purchasing new equipment or expanding operations.