Tim Cook receives compensation in the amount 1 million dollars in cash and 10,000 Apple Call options (Employee stock options each call option represents 100 shares, as usual). These are the only options that he owns in Apple.

It is currently Dec 1^st, 2022 and the options all expire on Jan 1, 2023. The current stock price for Apple is 99 dollars and all the options have an exercise price of 100 (S=99, X=100).

Tim Cook is evaluating a project with the following terms:

- 25% chance the project goes well and increases the stock price to 115.

- 50% chance the project does ok and the stock price increases to 101.

- 25% chance the project is a disaster and the stock price plummets to 68.

a) Given his options holdings, what will Tim Cooks decision be? What is his expected payout if he does not take the project on? What is the expected payout in his options (expected dollar amount he will get) should he take on the project? Will he take the project or not take on the project?

b) If he decides to do the project, what are the expected payouts to shareholders (expected dollar amount the stock will go up or down)?

c) If you were designing the pay package for Tim Cook (i.e. picking what form his compensation takes) what are two ways you could design his compensation so that his interests are aligned with those of the shareholders?