Your parents are curious about the factors that may determine the market values of common stocks. They know, in a fundamental sense, the market value of a firm should reflect investors' expectations of the firm's future profitability. However, they notice that data on expected future profitability is non-existent but investors can use measures, such as current income, sales, assets, and debt of the firm, as variables observable now but may influence the future prospects of the firm.

Your parents have prepared the relevant accounting information of the stocks listed on the NYSE (stock exchange code = 11) and NASDAQ (stock exchange code = 14). The list of stocks and accounting information can be found in the Excel file named "Firm Data.xlsx". They expect you and your group members to perform statistical analyses for the following questions by randomly selecting 100 stocks from the Excel file. Your parents do not mind if some of the variables below are missing for the firms selected in your sample.

The annual variables of the stocks they consider include:

MARKETCAP (Market Capitalization) = (price per share x the number of shares outstanding)

INCOME = net income of the firm

SALES = total sales of the firm

ASSETS = book value of the assets of the firm

DEBT = the amount of long-term debt held by the firm

(*All variables are in $millions.)

Prepare a professional report that addresses the following issues:

1. Design a sampling plan to form a sample with a size of 100 firms consisting of the NYSE and NASDAQ firms from the stock list. Explain your sampling plan in your report and demonstrate it in Excel.

2. Describe the characteristics of the population and the sample, respectively, by presenting appropriate descriptive statistics of the variables. (Note: Using both graphical and numerical descriptive statistics). Discuss your findings.

3. For the population, examine the skewness of the distribution of MARKETCAP of the firms listed on the NYSE. Repeat this for the NASDAQ firms. Compare your results for these two groups of firms.

4. According to the sample, do firms with large sales tend to earn more (as measured by INCOME) than those with small sales?

5. According to the sample, how are these variables (MARKETCAP, DEBT, ..., and ASSETS, etc.) correlated with each other?

6. Based on your sample:

a. Estimate the confidence interval of the mean MARKETCAP of the NYSE and NASDAQ stocks, respectively, with 95% confidence.

b. Do the estimated confidence intervals cover the true population means?

c. Test if the variances of MARKETCAP for these two groups of stocks are equal (alpha = 0.05).

d. Based on your answer to 6c, test whether the NYSE stocks have larger market values than the NASDAQ stocks at the 5% significance level.

7. Perform a regression analysis with MARKETCAP as the dependent variable and INCOME as the independent variables for all stocks (alpha = 0.05).

a. Report the estimated coefficient of INCOME.

b. Discuss how INCOME (statistically) explains MARKETCAP for stocks.

c. How well does the regression model work?

8. Incorporate a dummy variable, D (D = 1 for NYSE, D = 0 for NASDAQ) in the regression model in Q7. At the 5% significance level, examine whether the impact of INCOME on market cap differs between these two groups of stocks.

9. Now include all of the four independent variables (INCOME, DEBT, ASSET, SALES) in the multiple regression model. Report which variables exhibit explanatory power for market capitalization. Does this new model perform better than the single regression model performed in Q7?

10. Write a 500-word literature review section to discuss how your results in Q9 are related to the findings of the existent literature about stock returns an and these four annual accounting variables.