Answer to Question #38515 in Economics of Enterprise for marvi

Question

An executive's employment contract calls for a salary of $400,000 per year, a bonus equal to 2 percent of profits in excess of $10,000,000, and an option to buy 5,000 shares of common stock at a price of $50 per share. the market price of the stock is $70 per share, and the firm's profits for the current year are $12,000,000. Assuming the executive exercises the stock option and then sells the stock, what is the total compensation for the year?