In a Principal-Agent Relationship, Moral Hazard Might Occur If

question 30

Multiple Choice

In a principal-agent relationship, moral hazard might occur if

• A)the agent can hide his actions from the principal.
• B)the principal and agent are married.
• C)payoffs are based on a state of nature.
• D)the principal can hide her actions from the agent.

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Definitions:

Double-declining-balance Method

A form of accelerated depreciation where an asset’s book value is decreased at double the rate of its straight-line depreciation.

Straight-line Method

A depreciation method that allocates an equal amount of depreciation expense for an asset over its useful life.

Salvage Value

The estimated residual value of an asset at the end of its useful life, usually considered for depreciation calculations.

Depreciation Method

A systematic approach used to allocate the cost of a tangible asset over its useful life.