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Homework answers / question archive / 1)1)Define Agency theory 2) Risk in investment can be eliminated by improved accounting and auditing procedures? - True b- False 3- Accounting regulation prevents fraud
1)1)Define Agency theory 2) Risk in investment can be eliminated by improved accounting and auditing procedures? - True b- False 3- Accounting regulation prevents fraud. a- True b- False 4. Only firms that perform well have incentives to report their operating results. a. True b- False 5. Which of the following concepts provides a framework for analysing financial reporting incentives between managers and owners? 2- Signalling theory b- Agency theory C- Information symmetry 6. What is signalling theory?
2)A mechanic borrows $7500 to expand his garage. The interest rate is 14% compounded quarterly with payments due every quarter. What are the quarterly payments if the loan is to be paid off in 5 years? (Round your final answer to two decimal places.)
3)Consider the following timeline: Date $500 Cash flow -S500 If the current market rate of interest is 7%, then the value as of year 1 is closest to O $0 O $570 O $1000 O $68
1)I am answering the first four subparts as per the guidelines of Chegg. It is being requested to post separate questions
1. Agency theory is a concept which focuses upon the fundamentals of principles and Agent relationship and it advocates that agents are appointed in in order to work in the best interest of the principal and agent should always be trying to protect the interest of the principal and maximize the benefits of the principal and agent should never be working in his own interest because that would be leading to agency problems and conflict of interest.
2. The given statement is FALSE as improved auditing and accounting will never eliminate the risk associated with investment because risk associated with investment can never be eliminated completely.
3. The given statement is TRUE about accounting regulation because accounting regulation will be preventing fraud to a certain extent as accounting regulation will be trying to control the reporting of entity according to the guidelines of accounting standards.
4. The given statement is FALSE because all the firms which have even reported losses are also required to post their financial results
5. (B) agency theory
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3)
we will find the future value of cash 0 as cash flow at year 1 and discount the cash flow of year 2 to year 1.
Future Value of Cash flow at Year 0
Future Value = Present Value * ( 1+ Interest rate)^Number of year
= 500 * (1+7%)^1
= 500 * 1.07
= 535
value of cash flow of year 2 at year 1
= value of cash flow at year 2 / ( 1 + Interest rate)^Number of year
= -500 / (1+7%)^1
= -500 / 1.07
=-467.289719626
So, The value at year 1 = 535 - 467.289719626
= 67.710280374
So, The value is closest to $68
Therefore, The correct answer is $68
