You are about to start working at a car dealership that is currently reporting losses due to flooding but will be profitable in a few years. Assume you are risk-averse and your supervisor cannot fully monitor your actions. The key metrics at this dealership include both financial data (number of sales, margin on sales) as well as qualitative data (survey of experience). You are tasked with designing a compensation contract. 1. Describe how the firm may want to establish a compensation contract. Please include a discussion of moral hazard and adverse selection issues and how the contract may mitigate those issues. 2. Discuss whether you think an employee is likely to accept this contract depending on how risk- averse they are? Can you offer up a compromise? 3. Suppose a firm has a tax loss in the current period of $200 and previous tax losses of $100, giving them a total tax NOL carryforward of $300. The top statutory tax rate is 21%. Assume an after-tax discount rate of 10% and a future taxable income of $50 per year. What is the firm's marginal explicit tax rate? |