Sarakose Co

question 58

Multiple Choice

Sarakose Co. is a U.S. company with sales to Canada amounting to C$5 million. Its cost of materials attributable to the purchase of Canadian goods is C$7 million. Its interest expense on Canadian loans is C$5 million. The dollar value of Sarakose's "earnings before interest and taxes" would ____ if the Canadian dollar appreciates; the dollar value of its cash flows would ____ if the Canadian dollar appreciates.

• A) increase; increase
• B) decrease; increase
• C) decrease; decrease
• D) increase; decrease
• E) increase; be unaffected

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Definitions:

Intercept

In statistics and mathematics, the point at which a line crosses the y-axis in a graph, representing the value of the dependent variable when the independent variable is zero.

Error Term

The difference between observed values and estimated values in a statistical model.

Multicollinearity

A statistical phenomenon where two or more predictor variables in a multiple regression model are highly correlated, potentially distorting estimates.

Correlation Coefficient

The correlation coefficient is a statistical measure that calculates the strength and direction of the relationship between two variables, ranging from -1 to 1.