Question: Grimes Inc manufactures fishing boats for use in the Caribbean

Grimes Inc. manufactures fishing boats for use in the Caribbean. The company is in the process of looking for a new CFO. The executive search committee interviewed a candidate who appeals to all committee members. The candidate has proposed a compensation package that has a bonus clause tied directly to net income. The bonus as proposed is 50 percent of any increase in net income. During the interview, the candidate stated that his knowledge of the industry shows a big increase in demand for the company’s boats in the next few years, and he is proposing doubling production immediately to build inventory to be ready for the expected increase in demand.

Write a brief nontechnical memo outlining the potential impact of the increase in inventory if sales stay stable in the coming year as projected by the candidate. Would the new CFO be responsible for the increase in profits next year if sales remain stable? Why or why not?

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  • CreatedMarch 11, 2015
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