If employers are risk neutral and employees are risk averse, why is a salary contract optimal, ignoring tax and asymmetric information considerations? Under what conditions in employee compensation contracting are tax and risk sharing considerations in conflict? As a result of these conflicts, do employees bear more risk than if the goal were simply to allocate risks efficiently?
Answer to relevant QuestionsIn the presence of hidden action problems, under what conditions will a deferred compensation contract both minimize taxes and provide desirable work incentives for employees? Suppose the tax rate is 30% if taxable income is positive and 0% if taxable income is negative. Calculate the expected tax payable for the following four projects. For each project the expected taxable income is $ 50,000. ...An owner manager of a firm is contemplating selling it to any one of a number of prospective buyers. The firm has net operating loss carryforwards (NOLs) known to be worth $ 50 million more to the buyers than to the seller. ...What alternative investment and financing instruments can firms use to alter their marginal tax rate? Why might the firm prefer to repackage its capital structure (the mix of financial instruments it issues to finance ...Suppose a firm has a tax loss in the current period of $10 million, which when added to prior tax losses gives it an NOL carry forward of $15 million. The top statutory tax rate for the foreseeable future is 35%. Assume an ...
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