quiz2 - Econ 302 Quiz 2 Fall 2007 On Thursday I will cover...

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Econ 302 Quiz 2 Fall 2007 On Thursday I will cover sections 4.2, 4.3 and 4.4. Answer all questions. Show all work. Reasoning left unexplained will assumed to be reasoning not learned. Good luck! 1) Suppose we are interested in finding out how sales growth affects profitability for aerospace and defense companies. Let y represent the annual percent return on capital (profitability) and x represent the annual percentage sales growth. We have a sample of 8 companies: y x Alliant Techsystems 23.1 7.0 Boeing 13.2 5.6 General Dynamics 24.2 31.2 Honeywell 10 2.5 L-3 Communications 10.1 5.4 Northrop Grunman 10.8 6.0 Rockwell Collins 27.3 18.7 United Technologies 21.1 13.2 To save time, you can use the equation : ˆ y = 11.2598 + .55492x. A industry expert claims that sales growth increases profitability. Test the claim. a) State the null and alternative hypotheses in terms of β 1 . b) Compute the test statistic. c) Find the reject point for α =.01. d) Test the null hypothesis using α = .01.

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