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 ratio based on return on equity.

b. Develop a regression model to predict price-to-book-value ratio based on growth.

c. Develop a regression model to predict price-to-book-value ratio based on return on equity and growth.

d. Compute and interpret the adjusted r² for each of the three models.

e. Which of these three models do you think is the best predictor of price-to-book-value ratio?