(Continuation of Problem XXXXXXXXXXTest whether D/E alone does as good a classification job as all six variables PROBLEM 11.2 For the data shown in Table 9.1, divide the chemical companies into two...

(Continuation of Problem 11.2.) Test whether D/E alone does as good a classification job as all six variables

PROBLEM 11.2

For the data shown in Table 9.1, divide the chemical companies into two groups: group I consists of those companies with a P/E less than 9, and group II consists of those companies with a P/E greater than or equal to 9. Group I should be considered mature or troubled firms, and group II should be considered growth firms. Perform a discriminant function analysis, using ROR5, D/E, SALESGR5, EPS5, NPM1, and PAYOUTR1. Assume equal prior probabilities and costs of misclassification. Test the hypothesis that the population D 2 = 0. Produce a graph of the posterior probability of belonging to group I versus the value of the discriminant function. Estimate the probabilities of misclassification by several methods