A financial analyst engaged in business valuation obtained financial data
A financial analyst engaged in business valuation obtained financial data on 53 drug companies (Industry Group SIC 3 code: 283). The file Business Valuation 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?
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