Small Manufacturing Concern.

Prompt: Goal Alignment at a Small Manufacturing Concern. The owners of a
small manufacturing concern have hired a manager 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 first $150,000 of profit, and then
10% of profit over $150,000. The purchase price for the company is set as 4½
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 goals of the owners?
o Requirements: 250 words minimum initial post, 100 words minimum reply
• Discussion 2 (10 points)
o Prompt: As an example of a company that did not ignore its cost of capital,
consider Coca-Cola in the 1980’s. It had very little debt because it preferred to
raise equity capital from its stockholders. It also had a diversified product line,
including products like aquaculture and wine. But none of these activities earned
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as much as its soft drink division. The opportunity cost of investing in these
unrelated businesses was the forgone opportunity to expand the soft drink
division, which at the time was earning a 16 percent return on capital. Although,
these other businesses were earning a positive 10 percent rate of return on capital,
the opportunity cost of that capital was 16 percent. CEO Robert Goizueta
correctly decided to sell off these under-performing divisions and invest the
capital in its soft drink division. By making decisions whose benefits were greater
than their costs, the topic of this chapter, Coca-Cola increased its profitability.
Discuss why this was a good decision.
o Requirements: 250 words minimum initial post, 100 words minimum reply
Writing Assignment: Submit by Saturday 11:59 p.m.
• Unit Writing Assignment 1 (30 points)
o Prompt: After completing the lecture and reading assignments, write a response to
the following questions. How do a company’s goals, constraints, incentives, and
market rivalry affect its economic decision-making? To what extent does a
Christian have different goals, constraints, and incentives compared to a nonChristian? Requirements
o Requirements: Paper should be 300-500 words. Use APA format.