Question: Charles Brandon is thinking about investing in the Purple Arrow Company, which makes central air conditioning units. The company has been in business for over 50 years, and Charles believes it is very stable. Based on his investing knowledge and experience, Charles believes that the dividend paid out by the company is a function of earnings per share (EPS). Using the Internet, Charles has been able to find the EPS and dividend per share paid by Purple Arrow for each of the past 10 years, as shown in the following table:
(a) Develop a regression model to predict the dividend per share based on EPS.
(b) Identify and interpret the R2 value.
(c) The EPS next year is projected be $1.33. What is the expected dividend?