A very shrewd businessman who strongly believed in cost-cutting and profit maximization always bargained very hard in everything. He recently hired somebody to run his textile factory. During the employment contract negotiations he bargained hard to hire the factory manager at the lowest salary this person would agree to. Then after the contract was signed, he gave the factory manager 100,000 shares of the company at prices slightly below the market price under the condition that the manager could not sell them for at least 4 years. Why would the businessman give something to the manager after he already has hired the manager and the manager has already accepted the salary? Why would the businessman increase his own cost by giving away something at a price lower than the market value?

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The businessman had two objectives a Cost cutting and b profit maximization In order to meet his fir... View the full answer