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

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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 yourown terms moral hazard and adverse-selection Describe how the firmmay want to establish a compensation contract for you given moralhazard and adverse selection issues. 2. Does this change dependingon your level of risk aversion? 3. Discuss both tax and nontaxfactors from both the employee and employers perspective. 4.Suppose a firm has a tax loss in the current period of $200, whichwhen added to prior tax losses gives it an NOL carryforward of$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 thecompensation contract with points 1-4 in mind. Keep this contractto a single page. You will be graded on creativity, presentation,and writing clarity.

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