Question #37

of 139 Consider the following analysis of variance table: Source Sum of Squares Df Mean Square Regression 20 1 20 Error 80 20 4 Total 100 21 The F-statistic for a test of joint significance of all the slope coefficients is closest to: A) 0.2. B) 5. C) 0.05. William Brent, CFA, is the chief financial officer for Mega Flowers, one of the largest producers of flowers and bedding plants in the Western United States. Mega Flowers grows its plants in three large nursery facilities located in California. Its products are sold in its company-owned retail nurseries as well as in large, home and garden "super centers". For its retail stores, Mega Flowers has designed and implemented marketing plans each season that are aimed at its consumers in order to generate additional sales for certain high-margin products. To fully implement the marketing plan, additional contract salespeople are seasonally employed. For the past several years, these marketing plans seemed to be successful, providing a significant boost in sales to those specific products highlighted by the marketing efforts. However, for the past year, revenues have been flat, even though marketing expenditures increased slightly. Brent is concerned that the expensive seasonal marketing campaigns are simply no longer generating the desired returns, and should either be significantly modified or eliminated altogether. He proposes that the company hire additional, permanent salespeople to focus on selling Mega Flowers' high-margin products all year long. The chief operating officer, David Johnson, disagrees with Brent. He believes that although last year's results were disappointing, the marketing campaign has demonstrated impressive results for the past five years, and should be continued. His belief is that the prior years' performance can be used as a gauge for future results, and that a simple increase in the sales force will not bring about the desired results. Brent gathers information regarding quarterly sales revenue and marketing expenditures for the past five years. Based upon historical data, Brent derives the following regression equation for Mega Flowers (stated in millions of dollars): Expected Sales= 12.6 + 1.6 (Marketing Expenditures)+ 1.2 (# of Salespeople) Brent shows the equation to Johnson and tells him, "This equation shows that a $1 million increase in marketing expenditures will increase the independent variable by $1 .6 million, all other factors being equal." Johnson replies , "It also appears that sales will equal $12.6 million if all independent variables are equal to zero." Brent makes the following statements about model evaluation: Statement 1: The BIC metric usually imposes a higher penalty for overfitting than AIC. Statement 2: AIC is used if the goal is to have a better forecast, while BIC is used if the goal is a better goodness of fit.