A financial analyst engaged in business valuation obtained financial data on

71

drug companies. Let Y correspond to the price-to-book value ratio,

X1

correspond to the return on equity, and

X2

correspond to the growth percentage. Use the accompanying data to complete parts a. through e. below.

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Part 1

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

Yi=2.32462.3246+. 0707.0707X1i

(Round to four decimal places as needed.)

Part 2

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

Yi=_________________+___________________X2i

(Round to four decimal places as needed.)

Price/Book Value Ratio	Return on Equity	Growth%
1.562	12.911	6.382
8.216	11.793	135.677
2.074	12.326	0.005
6.625	25.205	14.109
1.217	8.703	22.807
3.289	38.147	19.081
2.366	25.598	24.564
5.305	19.685	11.621
2.403	22.722	49.823
7.743	69.698	36.761
0.424	3.897	41.116
2.472	9.131	28.918
7.626	29.186	51.963
5.138	17.754	25.053
2.117	29.352	23.912
4.778	31.434	9.484
2.179	14.679	18.557
4.064	11.926	39.199
1.875	14.269	39.533
1.598	14.114	27.039
1.894	14.807	13.118
4.881	20.606	17.299
2.382	14.845	15.887
2.017	5.629	16.757
2.912	11.149	8.349
1.844	16.248	18.333
5.489	23.915	16.769
4.687	14.634	46.545
2.628	6.299	34.143
1.627	18.973	8.443
8.525	39.025	14.998
2.129	15.269	25.058
2.914	19.805	0.238
7.536	18.374	3.286
3.259	20.669	9.494
2.723	34.727	7.151
2.499	15.484	9.503
1.269	10.358	4.719
3.008	23.586	4.141
10.308	91.593	13.398
2.004	1.682	15.937
1.638	9.393	5.707
2.003	19.458	0.035
7.204	5.074	102.676
1.206	42.833	1.617
5.795	90.885	73.992
6.569	19.487	8.912
2.613	27.292	34.558
3.386	12.948	12.074
7.018	24.605	11.575
13.716	82.022	24.627
4.088	1.535	20.245
7.081	3.731	22.215
6.208	31.508	49.941
1.071	5.088	13.334
9.351	47.847	61.224
1.282	13.395	10.811
0.979	36.046	8.989
3.896	28.676	70.996
3.599	18.012	51.864
2.126	14.019	16.986
10.104	133.086	171.426
4.219	21.974	8.521
8.518	11.273	247.752
2.005	17.189	10.894
4.156	19.395	6.441
2.347	8.448	24.471
2.903	18.576	14.321
4.555	21.675	5.708
4.962	49.512	31.362
2.071	19.305	3.877