Paying Payroll Service (PPS) Recently Declared Bankruptcy

question 75

Multiple Choice

Paying Payroll Service (PPS) recently declared bankruptcy. The price of PPS's stock has dropped from approximately $10 per share one year ago to $1 today. You can imagine that stockholders are not happy that the value of their stock has dropped so significantly. At the same time the financial position of the firm was deteriorating, PPS executives increased their salaries and perquisites substantially. Nothing they did violated any laws or was considered an unethical act. We would most likely describe this situation as _____. 

• A)an agency problem
• B)an accounting glitch
• C)an appropriate use of the tax laws
• D)an appropriate action, because executive compensation should always be increased substantially each year
• E)acceptable, because it is obvious that the executives were trying to maximize the value of the firm, which is what the shareholders want them to do

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Definitions:

Coefficient of Determination

A metric that quantifies the proportion of the variance in the dependent variable predictable from the independent variable(s).

Television Game Shows

Competitive entertainment programs on television where participants play games to win prizes.

Regression Line

A straight line that best fits the data points on a scatter plot, used in linear regression to model the relationship between independent and dependent variables.

Population Slope

In the context of regression analysis, it refers to the true slope parameter that describes how the dependent variable changes with the independent variable in the population.