30 Questions
What is the manager's utility function?
Utility = Good outcome + Bad outcome - Disutility
What is the probability of high earnings ($500) if the manager works hard?
0.7
What is the probability of low earnings ($200) if the manager shirks?
0.8
What is the manager's disutility if she works hard?
2 units
What is the manager's disutility if she shirks?
0 units
How is the manager's compensation calculated?
Compensation = Probability x SQRT(fixed salary + variable compensation)
What is the expected cash flow for Bumble in the first year of operations?
$5,100
What is the initial outlay required to acquire the computers?
$1,000
If competition is fierce in all 3 years, what is the net present value of Bumble's cash flows over the 3-year period?
$3,090.91
Assuming no competition, what is the payback period for the initial $1,000 investment?
Less than 1 year
What is the book value of the computers at the end of year 3?
$50
If the market interest rate is 3%, what is the present value of Bumble's expected dividends over the 3 years?
$288.83
If the manager accepts zero salary plus 30% of the profits before manager compensation from Red Ribbon Ltd, will they choose to work hard or shirk?
Work hard
What does EU(a1) represent in the scenario when the manager is working hard?
EU(a1) is the utility when the manager works hard and receives zero salary plus 30% of profits
In the scenario where Red Ribbon Ltd offers a zero salary plus 30% of profits, which component is considered as the variable part of the manager's compensation?
30% of profits
What influences the manager's decision to choose between working hard and shirking?
The EU values calculated for each choice
Which compensation package results in a higher expected utility for the manager in both scenarios?
$41 base salary with 20% of profits
What does the restricted classification indicate in this context?
There are restrictions on who can view or discuss this information
What is the main reason the board should comprise members of different backgrounds, skills, and experience?
To provide a wider range of perspectives and avoid groupthink
Why should the board seek out more female candidates?
To increase the board's gender diversity and align with the Code of Corporate Governance
Why should the board appoint younger members?
To help the company stay relevant in the face of technological and digital disruption
What is the primary issue with the current composition of the board?
The board is dominated by male members
What is the primary reason the board should appoint younger members?
To help the company stay relevant in the face of technological and digital disruption
What is the main issue with the current age composition of the board?
The board members are all above 60 years of age, which may lead to groupthink
What is the book value of Bumble according to the information provided?
$22,023.08
According to Ohlson's formula, what is the firm value of Bumble?
$21,823.08
What is the purpose of the auditor's suggested impairment of $200?
To account for potential losses due to users not paying for premium functions
If Bumble accepts the auditor's suggestion, what will happen to the firm value according to Ohlson's formula?
The firm value will decrease by $200
What is the annual reduction in cash flow or expected abnormal earnings according to the auditor's expectation?
$106.04
What is the purpose of using the discounted cash flow approach in this context?
To verify the auditor's expectation against Ohlson's formula
Prepare for your ACCT332 Accounting Thought and Governance final exam with this sample paper focusing on useful life, asset worth, and Ohlson's theory. Practice analyzing scenarios like Bumble Ltd.'s entry into the Singapore market and its competition with rivals like Tinder.
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