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Problem Set 1

Problem Set 1 - Trung Vo Ariuntungalag Sosorbaram Qiwen Ma...

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Trung Vo Ariuntungalag Sosorbaram Qiwen Ma Problem Set #1 1. a. _ Benefit from new equipment $900,000 _ Benefit from existing equipment $300,000 _ Marginal benefit $600,000 b. _ Initial cash investment $600,000 _ Receipt from sale of old equipment $250,000 _ Marginal cost $350,000 c. _ Marginal benefit $600,000 _ Marginal cost $350,000 _ Net benefit $250,000 d. I would recommend the company to replace the new equipment. Because the net benefit to share holder is positive. 2. a. - It is an agency problem because employee taking care of personal activity during work hours. - This problem will cost the firm to waste money because the firm is paying the employees the hours that they are taking care of their personal activity. In addition, it can lower the entire company’s performance in the short run and long run. -The solutions for this agency problem: Firm can warrant the employee, write policy, or fire employee. b. -It is an agency problem because it provides wrong information, which can mislead decisions made by internal users (shareholders) and external users (investors).
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Trung Vo
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