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Unformatted text preview: company. What is the main problem and how does this contract act to solve the problem? Answers: a) annual salary, interest income on the use of the loan and the annual equivalent of the loan principal to be received in 4 yrs. b) $85,000 + $28,000 + $71,919= $184,919 c) The main problem faced by equity financers is "Moral Hazard" through misuse of funds. That a major portion of compensation is from a "future" payment and the interim use of a large loan means that getting fired for inappropriate use of investor funds would impose a large loss on the employee and therefore this contract establishes a self monitoring device that lowers the monitoring costs of the owners....
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This note was uploaded on 02/22/2012 for the course MANEC 453 taught by Professor Jerrynelson during the Winter '10 term at BYU.
- Winter '10