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The owners of a small manufacturing concern have hired a manger to run the company with the expectation that he will buy the company after
The owners of a small manufacturing concern have hired a manger 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 profit, then 10% of profit over $150,000. Purchase price for the company is set at 4.5 times earnings (profit), computed as average annual profitability over the next five years.
Assume the company will be worth $10million in five years. Plot the profit of buying the company as a function of annual profit.
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