Answered: How can the principal agent problem be…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Focusing on cases in which transaction costs prevent the existence of a private market for pollution abatement rights, address the following issues: Because of the incentive challenges presented by direct surveying methods, theorists have focused on truth telling mechanism design. Assuming that both a provider and a user of abatement services are privately informed about their respective costs and benefits, briefly describe a Vickrey procedure that would provide incentives for them to truthfully reveal their private information to the government, explaining conceptually how it works.
Described below are situations which have arisen in three unrelated external audit clients of your firm. The year-end in each case is 31 March 20X1. Jade Ltd (Jade) Jade builds and operates fibre optic networks. During the year ended 31 March 20X1, the company incorrectly capitalised costs of £3 million in respect of repairs and maintenance to its networks and included these costs in non-current assets. The directors refuse to make any adjustments in respect of this matter as such an adjustment would cause the company to breach a loan covenant. The total assets of Jade at 31 March 20X1 are £525 million and the profit before tax for the year ended 31 March 20X1 is £71.3 million. Pearl Ltd (Pearl) Pearl maintains continuous inventory records and consequently the company does not perform a physical count at the year end. On 5 May 20X1, a fire in the office at Pearl's warehouse destroyed the company's inventory records and despatch records. The physical inventory was not damaged. There…
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Sarah acquired a parcel of shares in November 2021 for a total of $15,000 and disposed of them by sale in June 2023 for $27,000. She has an unapplied net capital loss from a previous income year of $2,000 that was made on a sale of shares. Sarah’s net capital gain for the 2023 income year is: Group of answer choices $2,000 $5,000 $10,000 $12,000 $15,000 $27,000

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How can the principal agent problem be minimized?