Assume the manager of a store earns an annual bonus based on meeting a certain level of
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Assume the manager of a store earns an annual bonus based on meeting a certain level of net income, which has been achieved consistently over the past five years. The company is currently considering the addition of a second store, which is expected to become profitable after two years. The manager is responsible for making the final decision as to whether the second store should be opened, and would receive an annual bonus only if a certain level of net income were achieved for both stores combined. Why might the manager refuse to invest in the new store even though the investment is projected to achieve a return greater than the company’s required rate of return?
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