problem1key - ECON 303 Spring 2005 Davis Problem Set#1 1 To...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECON 303 Spring 2005 Davis Problem Set #1 1. To attract Walt Snore to the job of CEO of Good Sleep Inc. Walt is given the following (a) a signing bonus of $750,000. (b) a bonus of $750,000 in any year that company return on revenues exceeds 7%. Also (c) Walt receives 500 shares per annum of the stock, which he may not sell for 5 years. Which of these components best mitigates the principle-agent problem? Which is does the least? Why?. Most Likely:__ Stock _____ Least Likely:__ Signing Bonus _____ Reason: _The signing bonus doesn’t induce effort. Restricted stock, on the other hand, should encourage attention to the long run value of the firm. 2. Good Sleep Inc. is considering the purchase of a new mattress assembler that allows the construction of multiple firmness levels in the same mattress. Good Sleep anticipates the following 5-year earnings stream from the sale of this mattress. Years in the Future Anticipated Profit 1 22 2 24 3 26 4 28 5 30 If the discount rate is 10% and the machine costs $90 (000), payable at once, what is the net present value of the machine?
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern