A financial analyst engaged in business valuation obtained financial data on 71 drug companies. Let Y correspond to the​ price-to-book value​ ratio, correspond to the return on​ equity, X1 and X2 correspond to the growth percentage. Use the accompanying data to complete parts a. through e. below. Business Valuation Data
Price/Book
Value Ratio Return on
Equity Growth%
1.531 12.945 6.441
8.281 11.775 135.566
1.965 12.387 0.144
6.629 25.184 14.279
1.262 8.725 22.722
3.337 38.023 18.978
2.493 25.658 24.641
5.202 19.594 11.586
2.281 22.715 49.817
7.609 69.636 36.675
0.355 3.733 41.171
2.513 9.086 28.815
7.542 29.293 52.045
5.161 17.697 25.068
2.175 29.284 23.836
4.791 31.541 9.572
2.182 14.851 18.469
3.988 11.951 39.042
1.828 14.241 39.401
1.507 14.091 27.004
1.954 14.915 13.193
4.871 20.595 17.334
2.376 14.875 15.867
2.166 5.566 16.753
2.998 11.214 8.384
1.694 16.125 18.362
5.512 23.972 16.694
4.711 14.734 46.556
2.622 6.305 34.134
1.699 19.045 8.471
8.353 38.899 15.048
2.142 15.191 25.129
2.923 19.725 0.335
7.425 18.473 3.189
3.316 20.762 9.515
2.874 34.652 7.082
2.467 15.594 9.479
1.183 10.336 4.797
3.053 23.484 3.998
10.305 91.597 13.394
2.074 1.668 15.899
1.627 9.449 5.739
1.992 19.346 -0.012
7.146 5.031 102.813
1.267 42.743 1.507
5.715 90.863 74.155
6.427 19.496 8.967
2.613 27.395 34.591
3.377 12.962 12.256
6.936 24.683 11.598
13.578 81.963 24.603
4.157 1.376 20.131
7.178 3.733 22.284
6.079 31.598 49.894
1.066 5.141 13.306
9.326 47.877 61.198
1.383 13.331 10.893
0.982 36.063 9.022
3.874 28.684 71.107
3.571 18.077 51.873
2.153 13.931 16.966
10.031 133.042 171.378
4.355 21.909 8.624
8.548 11.226 247.649
2.074 17.175 10.717
3.996 19.526 6.296
2.434 8.439 24.576
2.864 18.618 14.231
4.457 21.668 5.866
5.021 49.457 31.455
2.225 19.358 3.907
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.
Start with the part​ (a) model.
The adjusted r2 shows that ___% of the variation in is explained by correcting for the number of independent variables in the model.
Compute and interpret the adjusted r2 for the part​ (b) model.
The adjusted r2 shows that ___% of the variation in is explained by correcting for the number of independent variables in the model.
Compute and interpret the adjusted r2 for the part​ (c) model.
The adjusted r2 shows that %of the variation in is explained by correcting for the number of independent variables in the model.
e. Which of these three models do you think is the best predictor of​ price-to-book-value ratio?
The model from ___ is the best predictor of​ price-to-book-value ratio because it has the value of.