The Regression Model Developed to Predict a Firm's Price-Earnings Ratio $$\mathrm { PE } = 8.04 + 0.757 \text { Growth Rate } + 0.0516 \text { Profit Margin } + 2.09 \text { Green? }$$

question 29

Multiple Choice

The regression model developed to predict a firm's Price-Earnings Ratio (PE)
Based on Growth Rate, Profit Margin, and whether or not the firm is Green (1 = Yes, 0 =
no. is $$\mathrm { PE } = 8.04 + 0.757 \text { Growth Rate } + 0.0516 \text { Profit Margin } + 2.09 \text { Green? }$$
Which of the following is the correct interpretation for the regression coefficient of
Green?

• A) The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 higher than a firm that is not green with the same growth rate
• And profit margin.
• B) The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 lower than a firm that is not green with the same growth rate
• And profit margin.
• C) The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 times higher than a firm that is not green with the same
• Growth rate and profit margin.
• D) The regression coefficient indicates that the PE ratio of a firm that is green will, on average, be 2.09 times lower than a firm that is not green with the same
• Growth rate and profit margin.
• E) The regression coefficient is not significantly different from zero.

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Definitions:

Total Assets

The sum of all resources owned by a company, valued in terms of monetary units, which includes both current and non-current assets.

Traditional Balance Sheet

A financial statement that provides a snapshot of a company's financial position at a specific point in time, showing assets, liabilities, and equity.

Corporate Tax Schedule

A corporate tax schedule is a chart or system that determines the tax rate applied to a corporation's taxable income.

Progressive Taxes

A tax system where the tax rate increases as the taxable amount increases, leading higher income individuals to pay a higher rate than lower income individuals.