Concept explainers
A financial analyst engaged in business valuation obtained financial data on 60 drug companies (industry Group SIC 3 code: 283). The file BusinessValuation contains the following variables:
Company-Drug Company name
PB fye-Price-to-book-value ratio (fiscal year ending)
ROE-Return on equity
SGrowth-Growth (GS5)
a. Develop a regression model to predict price-to-book-value based on return on equity.
b. Develop a regression model to predict price-to-book-value based on growth.
c. Develop a regression model to predict price-to-book-value based on return on equity and
growth.
d. Compute and interpret the adjusted
e. Which of these three models do you think is the best predictor of price-to-book value ratio?
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