The Going Rate for Paying a CEO in the Widget

question 81

Multiple Choice

The going rate for paying a CEO in the widget industry is $1,000,000 per year.You find that the CEO of MasterWidgets has a contract that pays him $1,200,000 per year for five years if he cannot work for any other firm (for any reason during the contractual period) .What is the value of a real option for a CEO to not work for a firm other than MasterWidgets? Assume a discount rate of 10%.

• A) $181,818
• B) $200,000
• C) $758,157
• D) $1,000,000

---

Definitions:

ANOVA

Analysis of Variance, a statistical method used to assess whether there are significant differences between the means of three or more groups.

MST

An abbreviation that could refer to multiple subject terms, one common being Minimum Spanning Tree, a concept in graph theory used to minimize the path lengths connecting all points in a network.

MSE

Mean Squared Error, a measure of the quality of an estimator—it is always non-negative, and values closer to zero are better.

Horticulturist

A professional or expert involved in the practice of horticulture, focusing on the cultivation of plants for food, comfort, and aesthetic purposes.