Question: What payoffs would be required under an optimal incentives contract, similar to Table, if the cost overruns at Apple became as likely as those at
What payoffs would be required under an optimal incentives contract, similar to Table, if the cost overruns at Apple became as likely as those at Motorola?
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EXPECTED NET PROFIT SHARES (MILLIONS) WITH TRUE COST REVELATION UNDER AN OPTIMAL INCENTIVES CONTRACT APPLE NET REVENUE SHARES PROJECTEDNET PROFIT PROBA BILITY 0.7 0.3 COSTS $80 S60 $74 SHARES $120 S 65 $103.5 Lowa $28 Higha 1.5 Expected Value $29.5 MOTOROLA NET REV ENUE PROJECTED NET PROFIT PROBABILITY 0.5 0.5 COSTS S50 $49 $49.5 SHARES SHARES Low $88 $70 $79 $19 S10.5 $29.5 High Expected Value
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