Required: a. Suppose that profit without using the technique this year will be $9 million. By how much will Kevin's and Michelle's bonus change if Kevin decides to employ the new technique? b. Suppose that profit without using the technique this year will be $11.5 million. By how much will Kevin's and Michelle's bonus change If Kevin decides to employ the new technique?
Required: a. Suppose that profit without using the technique this year will be $9 million. By how much will Kevin's and Michelle's bonus change if Kevin decides to employ the new technique? b. Suppose that profit without using the technique this year will be $11.5 million. By how much will Kevin's and Michelle's bonus change If Kevin decides to employ the new technique?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:Magnolia Manufacturing makes wing components for large aircraft. Kevin Choi is the production manager, responsible for manufacturing, and Michelle Michaels is the marketing manager. Both managers are paid a flat salary and are eligible for a bonus. The bonus is equal to 1 percent of their base salary for every 10 percent profit that exceeds a target. The maximum bonus is 5 percent of salary. Kevin’s base salary is $270,000 and Michelle’s is $330,000.
The target profit for this year is $9 million. Kevin has read about a new manufacturing technique that would increase annual profit by 20 percent. He is unsure whether to employ the new technique this year, wait, or not employ it at all. Using the new technique will not affect the target.
Required:
a. Suppose that profit without using the technique this year will be $9 million. By how much will Kevin’s and Michelle’s bonus change if Kevin decides to employ the new technique?
b. Suppose that profit without using the technique this year will be $11.5 million. By how much will Kevin’s and Michelle’s bonus change if Kevin decides to employ the new technique?
---
The section below is for entering answers in the tabs provided:
- **Required A**
- **Required B**
Additional Information:
- "Suppose that profit without using the technique this year will be $11.5 million. By how much will Kevin’s and Michelle’s bonus change if Kevin decides to employ the new technique? (Round your intermediate percentage answers to the nearest whole percent. Enter your answers in dollars, not in millions.)"
- **Bonus Change Table:**
| | Bonus Change |
|-----------------|--------------|
| Kevin’s | |
| Michelle’s | |
Buttons for navigation:
- `< Required A`
- `Required B >`
Transcribed Image Text:**Case Study: Profit and Bonus Analysis at Magnolia Manufacturing**
Magnolia Manufacturing specializes in producing wing components for large aircraft. Kevin Choi serves as the production manager and oversees manufacturing processes, while Michelle Michaels fulfills the role of marketing manager. Both managers receive a fixed salary and are eligible for bonus incentives. The bonus structure allows them a bonus that equals 1% of their base salaries for every 10% of profit that surpasses a predetermined target. This bonus is capped at a maximum of 5% of their respective salaries. Kevin has a base salary of $270,000, and Michelle earns $330,000 annually.
The company aims for a profit of $9 million this year. Kevin has discovered a potential manufacturing technique that could boost the annual profit by 20%. He is deliberating whether to implement this technique immediately, later in the year, or not to utilize it altogether, as its use won’t affect the profit target.
**Problem Statement:**
1. Assume the profit without the new technique will reach $9 million. Calculate the change in bonuses for Kevin and Michelle if the technique is adopted.
2. Suppose the profit without the new technique will be $11.5 million. Determine the change in Kevin's and Michelle's bonuses if the technique is utilized.
**Interactive Component:**
To participate in this analysis, please input your calculations in the designated sections below:
- **Required A**: For a projected profit of $9 million without the technique, calculate the alteration in Kevin’s and Michelle’s bonuses with the technique’s application.
- **Required B**: For a projected profit of $11.5 million without the technique, compute the bonus variation for Kevin and Michelle with the introduction of the technique.
Enter your calculated bonus changes in complete dollar amounts rather than in millions of dollars.
**Data Entry Sections:**
- Kevin's Bonus Change
- Michelle's Bonus Change
**Navigational Tools:**
- Click "Required A" or "Required B" to proceed with each respective task.
This interactive case study aids in understanding the impact of strategic decisions on managerial incentives and overall company profitability.
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