The basis of compensation for CEOs and way of measuring performance if based on the performance, the easiest way to measure between growth rates in reported profits and growth rate in the stock’s intrinsic value and the better performance measure between them with reasons. Introduction: The compensation packages must be adequate to attract and retain the employees. The attractive compensation packages motivate the employees to perform efficiently, which increases the profit of the organization.

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AGG is a US multinational that manufactures specialist high tech parts in the airline engine industry. AGG is an established company with steady growth in turnover and dividends over the last 10 years. The company is undertaking a projected titled Project Big as a strategic response to the changing market scene. AGG will develop a new state of the art highly automated plant located in Cambodia which is expected to result in cost advantages if it is implemented. The details about the project are below • • • Initital investment has been estimated at $500m The annual pre tax savings in operating costs at current exchange rates has been calculated at $150m for the first four years (starting in the first year) The residual value of the project at the end of the four years is estimated to be $250m The initial investment, net of residual value, qualifies for capital allowance and can be claimed back on a straight line basis over the four years of the project. Current AGG's cost of capital is…

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Chapter 1, Problem 5Q

Summary Introduction

To determine: The basis of compensation for CEOs and way of measuring performance if based on the performance, the easiest way to measure between growth rates in reported profits and growth rate in the stock’s intrinsic value and the better performance measure between them with reasons.

Introduction:

The compensation packages must be adequate to attract and retain the employees. The attractive compensation packages motivate the employees to perform efficiently, which increases the profit of the organization.

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AGG is a US multinational that manufactures specialist high tech parts in the airline engine industry. AGG is an established company with steady growth in turnover and dividends over the last 10 years. The company is undertaking a projected titled Project Big as a strategic response to the changing market scene. AGG will develop a new state of the art highly automated plant located in Cambodia which is expected to result in cost advantages if it is implemented. The details about the project are below • • • Initital investment has been estimated at $500m The annual pre tax savings in operating costs at current exchange rates has been calculated at $150m for the first four years (starting in the first year) The residual value of the project at the end of the four years is estimated to be $250m The initial investment, net of residual value, qualifies for capital allowance and can be claimed back on a straight line basis over the four years of the project. Current AGG's cost of capital is…

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