Answer Happy

QUESTION 4 a) Given the current COVID-19 pandemic and ever declining cash flow projections the researcher develops an econometrical model capable of expressing the relation between the economic rate of return - as a fundamental indicator of expressing the firm's financial-economic performance - and its determinant factors. The regression model has been developed through the analysis of data from one hundred UK mid-sized firms in the manufacturing industry. For this, she relies on the dataset covering the pandemic period and runs the following regression: ERR = a₁ + B₁LIQ + B₂GOS + B3OGMR, + B4CFR + BEBITM, +BTDT₁ + &₁ where: ERR, = economic rate of return (EBIT/TA) in a year t, LIQ₁ = ratio between current liquid assets and current debt in a year t, GOS, = gross operating surplus in year t, OGMR, operating gross margin rate in year t, CFR = ratio between the cash flow and the turnover in year t, EBITM₁ = ratio between earnings before interest and tax, and total income in year t, TDT, ratio between turnover and total debt turnover in year t. (i) The regression analysis results are given below. Coefficients Standard Errors 1.3550 1.2808 2.9330 1.1254 2.1947 -0.0069 -2.2601 Constant LIQ₁ GOSt OGMR₁ CFR EBITM, TDT₁ 0.4445 1.1944 0.9369 0.6092 1.0643 0.0156 2.1403 Compute the R² and adj R2 and comment on the explanatory power of the regression equation. The researcher was also able to obtain information on explained variation (20.15) and total variation (27.75) that can help in computation of explanatory power. [6 marks] (ii) State the null and the alternative of the joint hypothesis test. 8 [2 marks] (iii) Using the 5% level of significance, compute and comment on the test statistic of the joint hypothesis test. [7 marks] (iv) Discuss the meaning and significance of the gross operating surplus, operating gross margin rate, ratio between the cash flow and the turnover, and ratio between earnings before interest and tax and total income coefficients at the 5% level. [16 marks] (v) The researcher runs alternative version of the main model focusing only on the significant variables. By considering the reduced model only, the idea is to estimate the significant impact exclusively. Thus, the aim is to answer the following question: "What is the estimate of the yearly economic rate of return when gross operating surplus is £354,111 and 0.027 is ratio between the cash flow and the turnover"? [4 marks] [Total 35 marks]