XR19-18 When one company buys another company, it is not unusual for some workers to be made…

XR19-18 When one company buys another
company, it is not unusual for some workers to be made redundant. The severance
benefits of fered to the laid-of f workers are often the subject of dispute.
During the Ansett Airlines crisis of the late 1990s, a leading airline in
Australia (which cannot be named for legal reasons), Airline A, bought one of
Ansett’s regional airlines, Ansett R, and subsequently terminated the contracts
of 20 of Ansett R’s employees. As part of the buyout agreement, it was promised
that the severance packages of fered to the former Ansett R employees would be
equivalent
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XR19-18 When one company buys another
company, it is not unusual for some workers to be made redundant. The severance
benefits of fered to the laid-of f workers are often the subject of dispute.
During the Ansett Airlines crisis of the late 1990s, a leading airline in
Australia (which cannot be named for legal reasons), Airline A, bought one of
Ansett’s regional airlines, Ansett R, and subsequently terminated the contracts
of 20 of Ansett R’s employees. As part of the buyout agreement, it was promised
that the severance packages of fered to the former Ansett R employees would be
equivalent to those of fered to Airline A employees whose contract had been
terminated in the past year. Thirty-sixyear-old Bill Smith, an Ansett R
employee for the past 10 years, earning $32000 per year, was one of those let
go. His severance package included an of fer of five weeks’ severance pay. Bill
complained that this of fer was less than that of fered to Airline A’s
employees when they were laid of f, in contravention of the buyout agreement. A
statistics practitioner was called in to settle the dispute. The statistics
practitioner was told that severance packages should be determined by three
factors: age, length of service with the company, and salary. To determine how
generous the severance package had been, a random sample of 50 Airline A
ex-employees was taken. For each, the following variables were recorded: Number
of weeks of severance pay Age of employee Number of years with the company
Annual salary (in thousands of dollars)

a Determine the regression equation.
Interpret the coefficients.

b Comment on how well the model fits the
data.

c Do all the independent variables belong
in the equation? Explain.

d Perform an analysis to determine whether
Bill is correct in his assessment of the severance package.

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