Answer the questions of this problem, using the following estimated equation: ln( salary ) = 4.503 + 0.163ln( sales ) +0.109ln( mktval ) + 0.012…


Where the variables are described as follows:

salary= CEO compensation, in $1000

sales= firm sales, in $millions

mktval= the market value of the firm , in $millions

ceoten= the number of years as CEO with the company

a. What is the impact on CEO salary, of a 50% increase in the firm’s market value?

b. What is wrong with the statement: “A 10% increase in sales revenue is associated with about a 16.3% increase in salary”?

c. Interpret the coefficient of the variable ceoten.

d. With a 5% significance level, test the hypothesis that a longer tenure ha a positive effect on the CEO salary.

e. A company in out sample currently has a market value of $23,200 millions, a total revenue from sales evaluated at $6,200 millions, and a CEO who has been with the firm for 2 years already. Calculate the estimated ln(salary) of this company’s CEO.

f. With a 5% significance, are the variables sales, market value, and CEO tenure, jointly significant predictors of CEO salary?

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