You are about to start working at car dealership that is currently reporting losses due to...

90.2K

Verified Solution

Question

Accounting

You are about to start working at car dealership that iscurrently reporting losses due to flooding but will be profitablein a few years. Assume you’re your risk adverse and your supervisorcannot fully monitor your actions. The key metrics at thisdealership include both financial data (number of sales, margin onsales) as well as qualitative data (survey of experience). You aretasked with designing a compensation contract.
1. Define in your own terms moral hazard and adverse-selectionDescribe how the firm may want to establish a compensation contractfor you given moral hazard and adverse selection issues.
2. Does this change depending on your level of riskaversion?
3. Discuss both tax and nontax factors from both the employeeand employers perspective.
4. Suppose a firm has a tax loss in the current period of $200,which when added to prior tax losses gives it an NOL carryforwardof $300. The top statutory tax rate is 21%. Assume an after-taxdiscount rate of 10% and future taxable income of $50 per year.What is the firm’s marginal explicit tax rate?
5. Create the compensation contract with points 1-4 in mind.Keep this contract to a single page. You will be graded oncreativity, presentation, and writing clarity.

Answer & Explanation Solved by verified expert

4.5 Ratings (822 Votes)

ANSWER A compensation agreement willinclude information regarding all parties involved in the discussion of the contract it will include details of how compensation of employee will be on basis on job descriptionThe compensation must include details of salarysalary components and commission bonus details if any The contract needs to mention all details regarding the type of compensation like daily wages weekly wages or monthly salarySo next would be to define commission and bonus details if any It will include details of Terms of employment whether See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member