A Financial analyst engaged in business valuation obtained financial data on 71 drug companies (Industry Group SIC 3 code: 283). The file Business Combination 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?