Use MINITAB and the following information to answer question. To find out whether there is a relationship between the amount of financial leverage a firm uses and the return on the firm’s assets, you collect information on the debt/equity ratio and return on assets for the “big three” automakers and the average for the auto industry.

Redo question 51 using the data for Ford.

Question 51

Suppose you believe that in addition to there being a relationship between the return on assets and the debt/equity ratio, the return on assets in the previous period may also play an important part in determining the return on assets in the current period. You estimate the equation:

(a) Use the data for Chrysler to estimate the foregoing equation.

(b) Compare your results to the simple regressions you computed in question 42.

Question 42

Estimate the regression of Chrysler’s return on assets against its debt/equity ratio. Compute the Durbin–Watson statistic. Does autocorrelation exist?

Transcribed Image Text:

Year Debt/equity ratio 69 70 71 72 73 74 75 76 Chrys. 1.23 1.23 1.20 1.21 1.24 1.53 1.60 1.51 Ford .76 .81 .89 .95 1.02 1.27 1.21 1.22 GM .45 .44 .69 .56 .62 .63 .66 .70 Indus. .74 .79 .91 .89 .92 1.09 1.10 1.08