Tutor profile: Reed B.
Subject: Corporate Finance
How can shareholders of a company prevent agency problems with management?
Agency problems occur when management acts to benefit themselves (such as buying a jet or giving themselves a bonus) instead of maximizing shareholder value. This can be prevented if managers own shares of stock in the company, and therefore benefit themselves if share value goes up.
Why might a company with temporary high tax rates use an accelerated depreciation method for a new factory?
Using an accelerated depreciation method will result in a higher depreciation expense during the year, which would reduce the company's net income. A lower net income means the company will pay fewer taxes.
Why might the government implement contractionary fiscal policy by raising taxes?
The government would implement a contractionary fiscal policy to slow down an economy that is growing too quickly. Raising taxes will leave consumers with less money to spend. This will 'pull back' on the economy and prevent inflation.
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