A committee studying tax reform is taking a close look at the taxes that corporations pay on reported income. A random sample of 5 firms yielded the following results with all figures in $ million:

Firm

Reported Income Income taxes paid

A 125 65

B 80 40

C 210 100

D 115 50

E 100 40

A partial regression printout using Excel is shown below for this data.

Regression Statistics

Multiple R

0.978568343

R Square

0.957596002

Adjusted R Square

0.943461336

Standard Error

5.968195546

Observations

5

Coefficients

Standard Error

t Stat

P-value

Intercept

-2.988966901

7.990201678

-0.37408

0.73322

Reported Income

0.491975928

0.05977168

8.23092

0.003754

a)The forecast income tax paid for a reported income of 80$ million would be?

b)The error (residual) for a reported income of $80 million would be?

Test at the 5% level of significance whether a significant linear relationship exists between reported income and income tax paid. Justify your answer by outlining your hypotheses, your decision rules, and your final decision whether to reject or not reject Ho.