19)

Horizon Company produces a variety of boating products. Each division manager at Horizon is paid a base salary and given an annual cash bonus if the division achieves profits of at least 12 percent of the value of assets invested in the division (this is often called return on investment).

Whereas, Kathy Bainsley, manager of the Kayak Division, is considering investing in new production equipment. The net present value of the proposal is positive, and Kathy is convinced the new equipment will provide a competitive edge for future years. Even though short-term profits will reduce the return on investment below the 12 percent requirement for the next two years, profits are expected to increase significantly beginning in year three. Unfortunately, Kathy is planning to retire in two years and this investment would prevent her from receiving her annual bonuses for the next two years. As a result, Kathy plans to reject the proposal to invest in new production equipment.

Which company action would increase the likelihood of Kathy accepting the proposal?(5pts)

a. Offering stock options.

b. Providing short-term bonuses that adjust for the negative effects of new projects.

c. Establishing policies that require review teams for new projects.

d. All of the choices increase the likelihood of Kathy accepting the proposal

e. None of the answer choices is correct.