The Compensation Package for Divisional Managers of Grant Enterprises Consists

question 45

Multiple Choice

The compensation package for divisional managers of Grant Enterprises consists of (1) a salary of £120,000, (2) a bonus of 20 percent of the increase in divisional income, and (3) stock options for 5,000 shares of Grant stock. The options permit the managers to purchase the stock at £40 per share. The Western Division reported divisional income of £1,000,000 for last year and £1,300,000 for the current year. The Western Division's manager exercised stock options for 5,000 shares of Grant stock at a current market price of £55 per share.
The total amount of compensation for the Western Division's manager is

• A) £380,000
• B) £320,000
• C) £285,000
• D) £255,000

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Definitions:

Profit-Maximizing

A strategic approach in which a firm determines the best output level and pricing to achieve the highest possible profit.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single entity has a significant influence on the market price.

Long-Run Equilibria

A state in economics where all factors of production and costs are variable, and firms make decisions to maximize profits without any fixed inputs.

Demand Increases

A situation in which the desire and ability of consumers to purchase a good or service grow, typically leading to higher prices and potentially greater supply.