In the context of the Ross [1977] model, assume that managers are paid 20% of the time

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In the context of the Ross [1977] model, assume that managers are paid 20% of the time 0 and time 1 values of the firm. Further assume good firms are worth 250, bad firms are worth 150, and the risk-free rate is 10%. What is the minimum cost of false signaling that has to be imposed on management to ensure that all managers signal correctly?
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Financial Theory and Corporate Policy

ISBN: 978-0321127211

4th edition

Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri

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