Suppose Compensation Is Given by W = 512,000 + 217π

question 13

Multiple Choice

Suppose compensation is given by W = 512,000 + 217π + 10.08S,where W = total compensation of the CEO,π = company profits (in millions) = $200,and S = sales (in millions) = $400.What percentage of the CEO's total earnings are tied to profits of the firm?

• A) 8.2 percent
• B) 10.9 percent
• C) 7.8 percent
• D) 5.1 percent

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Definitions:

Payback

The amount of time it takes for an investment to generate an amount of income or cash flow to recover its initial cost.

Annual Cash Flows

The total amount of money being transferred in and out of a business, measured yearly.

Required Rate

The minimum return that investors demand for investing in a particular asset, reflecting the risk of the investment.

Discounted Payback Period

A capital budgeting method that calculates the amount of time needed to break even from an investment in present value terms, factoring in the time value of money.