Computer database GROWCO describes the characteristics of 100 companies identified by Fortune as among the fastest growing. Two of the variables listed are (1) estimated stock price/earnings ratio next year and (2) annual revenue growth (as a percentage).
a. Determine the least-squares regression equation for y = next year’s price/earning ratio estimate as a function of x = annual revenue growth. What would be the predicted value of y for a company whose annual revenue growth has been 150%?
b. What percentage of the variation in the magazine’s price/earnings estimates (y) is explained by the annual revenue growth percentage (x)? At the 0.05 level, does the slope of the equation differ significantly from 0?
c. Given x = 150%, construct and interpret the 95% confidence and prediction intervals associated with y.