The owners of a small manufacturing company have hired a manager to run the company with the

The owners of a small manufacturing company have hired a manager to run the company with the expectation that the new manager will buy the company after 3 years. Compensation of the new vice president is a flat salary of $100,000 plus 50% of the first $200,000 profit, then 10% of profit over $200,000. When the new manager purchases the company, he will be required to pay 5 times the average annual profitability of the 3 year period. 1. Plot the annual compensation of the VP as a function of annual profit. (Place profit on the horizontal axis and compensation on the vertical axis.) 2. Assume the company will be worth $10 million in 3 years. Plot the profit of buying the company as a function of annual profit. (Profit from purchase= Value – Price Paid) 3. Does this contract align the incentives of the new VP with the profitability goals of the current owners? 4. Redesign the contract to better align the incentives of the new VP with the profitability goals of the owners.