Lab Problem 1: Dunning for Dollars

(Statistical Reference: Ott and Longnecker Chapter 5)

The Stevens Collection Agency (SCA) buys aged accounts receivable from other firms at a fraction of the face value
with the hope of collecting more dollars of the accounts receivable than they paid for the accounts. Recently, the
owners of the Franklin Sales and Distribution Company approached H.A. Stevens (the president and founder of SCA)
with an offer to sell all their accounts receivable to Stevens at the price of 22% of the $15,278,325.00 total dollar
value in the 78,255 Franklin accounts receivable.

A quick algebraic computation revealed to Stevens that, in order to break even, he would have to reclaim an average
of $42.95 per account. Stevens decided that he would accept Franklin’s offer only if he could be 95% confident
that he would make money. As a counterproposal (subsequently accepted by Franklin), Stevens agreed to draw a
random sample from the 78,255 Franklin accounts receivable, and to go through SCA’s usual procedures to collect
the accounts within a one-month period. Whatever money was collected during this time from the accounts
sampled would be returned to Franklin; however, Stevens would use this information from the sample data to
determine whether or not to purchase the entire Franklin accounts receivable at 22%.

The data pertaining to the one-month study period are contained in a raw data file named Stevens.sav(available from
E-class web). Each record in the file corresponds to one account with two variables as follows: ID (Account ID),
Dollar (Dollar amount collected by SCA during the 1-month period).

Based on your statistical analysis, present in your report a recommendation on whether or not Stevens should
purchase all Franklin accounts receivable at 22%. In particular, Stevens wants to be 95% sure he would make
money if he entered into the Franklin deal: your report should respond to this question.

All reports you submit in this class are to follow the format presented in the ‘Example lab report’. All reports you
submit in this class should:
 Formally state any hypotheses you formulate to respond to the tasks. You must state BOTH the null
hypothesis you will test, and the alternate hypothesis.
 Identify any test statistic(s) you choose and the reason for their selection;
 Identify whether you are employing a one-tail or a two-tail test, and why;
 Present and interpret the output; and
 Summarize your conclusions with respect to the particular problem at hand.

In addition to the write-up, you must turn in the computer outputs with the results of any/all SPSS runs on which
your conclusions are based.

Notes:
 Please note the wording of the phrase “Stevens wants to be 95% sure he would make money”. This is
different from the phrase “Stevens wants to be 95% sure he will LOSE money”. These two phrasings
would result in the generation of different alternative hypothesis, and could result in different decisions.
You must determine the correct alternative hypothesis, state what your alternative hypothesis is in your
report, and use it as part of your recommendation to Stevens.