Question 4-Regression analysis (30 points) You recently started your job as controller at SPRINT sports clothing (see question 3). LEILA acquired SPRINT, because management saw much potential in SPRINT-it fits nicely in the overall strategy to focus on high-quality brands. However, there are also some problems to overcome. Your first task is to provide some advice to LEILA's management to overcome the problem of shrinking profits. Specifically, for the upcoming annual management meeting, the CEO and CFO of LEILA asked you to provide insights into the role R&D expenditures play in the firm's profits. You recall that LEILA's management plans to overcome the problem of shrinking profits by increasing SPRINT's R&D budget to a level exceeding those of all competitors. However, LEILA's management is unsure how to allocate this R&D budget because several members of the management team have conflicting opinions on how to best spend it. On the one hand, some members of LEILA's management argue that R&D expenditures are important because it increases customer loyalty through more attractiveness and more timely, fashionable products, and thereby increases profits ("customer loyalty hypothesis"). To avoid old-fashioned and outdated SPRINT products, these members propose to spend the R&D budget on better understanding market trends and innovations. On the other hand, some members of SPRINT's old management argue that R&D expenditures are important because it increases product quality and allows LEILA/SPRINT to charge a quality premium, and thereby increases profits ("quality hypothesis"). Therefore, these members propose to spend the R&D budget on improving the quality of current products. To provide some insights into the role R&D expenditures play in the firm's profits, you obtain data on the above factors for all of SPRINT's 500 stores, including data on: (1) R&D expenditures, (2) customer satisfaction scores, (3) product quality; and (4) profits. You also already statistically examined the relations between these factors (see below). To prepare yourself for the upcoming annual management meeting, you think it is useful to write a short discussion in which you give advice to LEILA's management.Variable descriptions and descriptive statistics Variable Definition Mean Std. Dev. 25th 50th 75th The store's research and development R&D_INTENSITY expenditures, scaled by the store's total 0.276 0.097 0.213 0.273 0.343 assets. The store's average customer CUSTOMER SATISFACTION satisfaction score, ranging between ] 8.356 0.618 8.000 8.000 (extremely dissatisfied) and 10 9.000 (extremely satisfied). The store's average product quality, PRODUCT_QUALITY ranging between 1 (low quality) and 10 5.764 1.302 5.000 6.000 7.000 (high quality). RESIDUAL INCOME The store's residual income, scaled by 0.085 0.032 0.063 0.086 0.100 the store's total assets. Regression analyses Dependent variable: Dependent variable: CUSTOMER SATISFACTION PRODUCT_QUALITY (1) (2) Variable Coefficient p-value Coefficient p-value R&D_INTENSITY 1.921 0.001 0.884 0.140 Intercept 7.826 0.001 5.520 0.001 Observations 500 500 Adjusted R- 8.990% 0.238%Regression analyses Dependent variable: RESIDUAL INCOME (1) (2) (3) (4) Variable Coefficient p-value Coefficient p-value Coefficient p-value Coefficient p-value R&D_INTENSITY 0.047 0.001 0.016 0.259 0.028 0.001 0.002 0.712 CUSTOMER SATISFACTION 0.016 0.001 0.014 0.001 PRODUCT_QUALITY 0.021 0.001 0.021 0.001 Intercept 0.072 0.001 -0.053 0.001 -0.046 0.001 -0.151 0.001 Observations 500 500 500 500 Adjusted R 1.883% 10.460% 77.710% 84.100% 8. Discuss and explain the outcome of the regression analyses in light of the "customer loyalty hypothesis" and the "quality hypothesis. " Which conditions are required for the "customer loyalty hypothesis" to be true? Which conditions are required for the "quality hypothesis" to be true? Which hypothesis seems most likely, based on the results presented? Points: 20, word limit: 350. Your answer goes here. 9. Provide some advice to LEILA's management about how to best allocate SPRINT's R&D budget. Points: 10, word limit: 350. Your answer goes here