Question: (This problem can be solved with intuition, i.e not much math) The owners of a small manufacturing concern have hired a Vice President to run

(This problem can be solved with intuition, i.e not much math) 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. The compensation of the new Vice President is a flat salary plus 75% of the first $150,000 profit, then 10% of profit over $150,000. The purchase price for the company is set at 4.5 times earnings (profit), computed as average annual profitability over the next five years.

Does this contract align the incentives of the new vice president with the profitability goals of the owners?

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