Question

Monitoring the health and well-being of a company is accomplished, sometimes naively, bytracking the company’s performance from quarter to quarter in terms of net profit. Let thevariable X represent the number of quarters during the most recent one-year period in which acompany’s reported profits were negative (i.e, a loss). A sample of 23 firms in the biotechnicalfield produced the following data:

X01234

F 3 11 2 5 2

1. Develop the cumulative frequencies for this distribution.

2. What percentage of the companies sampled operated in the red for at most one

   quarter?

3. Some analysts form the ration of the value of X for each company to the industry-wide

   average to gauge how far out-of-line a company’s track record is. If this ratio exceeds2.1, the general conclusion is that the company is “financially troubled”. What wouldthe industry-wide average have to be in order for the two companies with X-values of 4 to be declared troubled?

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Answer 1