Question: Gill Bates is the CEO of a large company His
Gill Bates is the CEO of a large company. His compensation is based on current profitability. He is considering undertaking one of two investments available to the company: (a) one that yields profits of $500 million in each of the next 5 years and none thereafter and (b) one that yields annual profits of $300 million over 20 years. He selects the first investment. How could this example illustrate the agency problem?
Relevant QuestionsYou are a manager of a company that just spent $80,000 to purchase a piece of equipment that is expected to function for six years. If you can borrow money at 7%, what is the present discounted value of the depreciation ...You conducted a research study and found that corporations that finance their investments with a larger ratio of debt to equity tend to pay higher rates of interest to lenders. Why do you think this practice occurs? Suppose that the corporate tax rate is 25%, there is an investment tax credit of 10%, the depreciation rate is 5%, and dividend yield is 10%. The official depreciation schedule is such that the present discounted value of ...Tax evasion is particularly common for workers in professions like waiting tables and bartending, where tips make up a substantial fraction of compensation. Use economic theory to explain why this is the case. Consider two consumption tax systems: (a) one in which all goods are taxed at the same rate and (b) another in which the “necessities” are not taxed and “luxuries” ar taxed at a higher rate. Compare the equity and ...
Post your question