When Confronted with Multicollinearity, a Good Remedy Is to ________

question 115

Multiple Choice

When confronted with multicollinearity, a good remedy is to ________ if we can justify its redundancy.

• A) add one more collinear variable
• B) drop one of the collinear variables
• C) remove both the collinear variables
• D) add as many collinear variables as possible

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Definitions:

Net Profit Margin

A financial ratio that shows the percentage of net income to revenue, indicating the efficiency at which a company converts sales into net profit.

Gross Margin

The difference between the sales revenue and the cost of goods sold, indicating the profitability of a company's core business activities.

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations based on its earnings before interest and taxes (EBIT).

Debt-To-Equity Ratio

A financial ratio that measures the degree to which a company is financing its operations through debt versus wholly owned funds.