Question

The owners of a small manufacturing concern have hired a vice president to run the company with the expectation that he will buy the company after five years. Compensation of the new vice president is a flat salary plus 75% of the first $150,000 profit, and then 10% of profit over $150,000. Purchase price for the company is set at 4.5 times earnings (profit), computed as average annual profitability over the next five years.

PLOT the annual compensation of the vice president as a function of annual profit?

Answer 1

It is given that compensation of the new vice president is a flat salary plus 75% of the first $150,000 profit, and then 10% of
profit over $150,000
Let the flat salary be "L, 'M' be profit between $1 and $150,000 and 'N' be profit over $150,000. Annual compensation
of the vice president as a function of annual profit shall be:
L; for annual profit less than $0;
L+ (M x 75%); for annual profit between $1 and $150,000;
L + (M x 75%) + (N x 10%); for ann ual profit over $150,000.

Vice President's Annual compensation