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Q. Answer following questions:

1. What is maximum amount it would be worth to shareholders to elicit high CEO effort all time rather low CEO effort all time?

2. If you decide to pay 1% of this amount (in Question 1) as a cash bonus, what performance level (what share price or shareholder value) in table should trigger bonus? Suppose you decide to elicit high CEO effort when and if medium luck occurs by paying bonus for $800 million outcomes. What criticism can you see with this incentive contract plan?

3. Suppose you decide to elicit high CEO effort when and if good luck occurs by paying bonus for $1 billion outcomes only. What criticism can you see with this incentive contract plan?

4. Suppose you decide to elicit high CEO effort when and if bad luck occurs by paying bonus for $500 million outcomes. What criticism can you see with this incentive contract plan?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9294912

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