ECON 3315 Professor Glasure Problem Set #1 1. To attract Walt Snore to the job of CEO of Good Sleep Inc. Walt is given the following (a) a signing bonus of $750,000. (b) a bonus of $750,000 in any year that company return on revenues exceeds 7%, and (c) receives 500 shares per annum of the stock, which he may not sell for 5 years. Which of these components best mitigates the principle—agent problem? Which is does the least? Why? Most Likely: Least Likely: Reason: 2. Good Sleep Inc. is considering the purchase of a new mattress assembler that allows the construction of multiple ﬁrmness levels in the same mattress. Good Sleep anticipates the following 5—year earnings stream from the sale of this mattress. Years in the Future Antic' Profit ‘000’s 1 22 24 26 28 30 If the discount rate is 10% and the machine costs $90 (000), payable at once, what is the net present value of the machine? Is it a good purchase? (Write out the net earnings stream to generate your answer ) Net Present Value Good purchase ?.'
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