The regression equation NetIncome = 2,159 + 0.0312 Revenue was estimated from a
ID: 2799255 • Letter: T
Question
The regression equation NetIncome = 2,159 + 0.0312 Revenue was estimated from a sample of 100 leading world companies (variables are in millions of dollars). (a-1) Calculate the residual for the x, y pair ($45,533, $2,697). (A negative value should be indicated by a minus sign. Round your answer to 4 decimal places.) Residual (a-2) Did the regression equation underestimate or overestimate the net income? The regression equation overestimated the net income. The regression equation underestimated the net income. (b-1) Calculate the residual for the x, y pair ($60,417, $3,497).(A negative value should be indicated by a minus sign. Round your answer to 4 decimal places.) Residual (b-2) Did the regression equation underestimate or overestimate the net income? The regression equation overestimated the net income. The regression equation underestimated the net income.
Explanation / Answer
Solution:
a-1 When Revenue = 45,533, the Net Income would be
Net Income = 2159 + 0.0312 (45533) =3579.63
Residual = 2697 - 3579.6296
Residual = -882.6296
a-2: Since actual is less than expected, the regression equation overestimate the net income.
b-1:
When Revenue = 60417, the Net Income would be
Net Income = 2159 + 0.0312 (60417) =4044.0104
Residual = 3497 - 4044.0104
Residual = -547.0104
b-2: Since actual is less than expected, the regression equation overestimate the net income.