The owners of a small manufacturing concern have hired a manager to run the company with the

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The owners of a small manufacturing concern have hired a manager to run the company with the expectation that he will buy the company after five years. Compensation of the new vice president is a flat salary plus 75% of the first $150,000 of profit and then 10% of profit over $150,000. Purchase price for the company is set as 4½ times earnings (profit), computed as average annual profitability over the next five years. Does this contract align the incentives of the new vice president with the goals of the owners?

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