The owners of a small manufacturing concern have hired a manager to run the company with the expectation that (s)he will buy the company after five years. The goal of the owners in making this hire is to find the appropriate manager that will increase profits substantially. Compensation of the new manager is a flat salary plus 50% of first $200,000 of profit, and then 5% of profit over $200,000. Purchase price for the company is set as 41 2 times net earnings (profit), computed as average annual profitability (prior to calculation of the managers bonus) over the next five years.
(a) Does the bonus structure for the manager provide the manager with the appropriate incentive to increase profits beyond the first $200,000 ? Explain briefly.
(b) Is it a good idea to link the purhcase price of the company to the earnings (profit) of the company. Given this linkage, what do you think the manager will try to do?
(c) Does this contract align the incentives of the new manager with the (current)goals of the owners?

Small manufacturers Homework is work that is given by teachers for students to do at home . Homework is usually given to students by their school teachers . It is a practice work which helps students revise what they've learned that day . Homework helps students to remember what they learned . Some students will get more homework and some will get less . This depends on how old they are , what grade / primary / year they are in and how smart / intelligent they are . This could help decide what level they are at . Some students say that homework is a waste of time and that they do enough work at school . However , it is often believed that homework is important for a student because it may help in their exams and education . Homework is essential for anyone that is confused or behind a subject . Homework helps parents to get to know about their children progress in studies . It can also teach a child to be responsible . However , it has sometimes been a controversial form of learning as some groups argue about its disadvantages .