Value Line estimates of sales and earnings growth for individual companies are derived by correlating sales, earnings, and dividends to appropriate components of the National Income Accounts such as capital spending. Jason Black, an analyst for Value Line, is examining the trend of the capital spending variable from 1977 to 1993. The data are given in Table P-6.

a. Plot the data and determine the appropriate trend model for the years 1977 to 1993.
b. If the appropriate model is linear, compute the linear trend model for the years 1977 to 1993.
c. What has the average increase in capital spending per year been since 1977?
d. Estimate the trend value for capital spending in 1994.
e. Compare your trend estimate with Value Line's.
f. What factor(s) influence the trend of capital spending?

Transcribed Image Text:

TABLE P-6 Capital Spending (S billions), 1977-1993 Year SBillions Year SBillions YearSBillions 1977 1978 1979 1980 1981 1982 214 259 303 323 369 367 1983 1984 1985 1986 1987 1988 357 416 443 437 443 545 1989 1990 1991 1992 1993 1994 571 578 556 566 623 680