Can a corporations annual profit be predicted from

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Reference no: EM13371156

Can a corporation's annual profit be predicted from information about the company's CEO? Forbes (May 1999) presented data (shown in TABLE 2) on company profit (y) in (millions of dollars), CEO's annual income (x1) (in thousands of dollars) and percentage of the company's stock owned by the CEO (x2). Use the data in the TABLE below and answer the following questions.

(a) Fit a multiple regression model of y on x1 and x2. Fit two simple linear regressions: (I) y on x1; (II) y on x2. Compare the results of multiple regression analysis with each of simple linear regressions.

Rank the models in terms of usefulness and briefly comment on their performance. Use all of the tests and measures of usefulness discussed in class.

(b) Do you detect any signs of multicollinearity?

(c) Use the printout to test the following hypotheses using a significance level of 5%: (I) increasing the CEO's annual income (other things constant) will increase the company profit; (II) increasing the percentage of company stock owned by the CEO will increase the company profit.

TABLE: Company profit (y), CEO's annual income (x1), and the company stock owned by the CEO (x2)

Company	Profit (y)	CEO's income (x1)	% of the company stock owned by the CEO (x2)
Gap	824.5	3743	1.71
Intel	6068.0	52598	.13
Gateway 2000	346.4	855	43.93
HJ Heinz	746.9	2916	1.63
Conseco	630.7	124579	3.64
Citicorp	5807.0	6200	.22
Cisco Systems	1362.3	560	.06
General Electric	9296.0	40626	.03
America Online	254.0	26917	.54
Computer Associates	570.0	10614	3.79
Lockheed Martin	1001.0	2533	.01
Bear Stearns	538.6	23215	3.44

Reference no: EM13371156

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