The board of directors of Wireless, Inc is considering two ...

[Tazate]

The board of directors of Wireless, Inc is considering two compensation plans for the CEO of the company. The
  first would pay the CEO a salary of 250,000 for the upcoming year.
 
  The second would pay the CEO a salary of
  100,000 and provide the CEO with a stock option to buy 100,000 shares of stock for 11 per share. The current
  price per share of Wireless, Inc stock is 10 per share. The stock option expires at the end of the year. Why
  might shareholders prefer the second payment plan? As part of your answer, calculate the break-even point for
  the CEO to obtain the same compensation under option two as he or she would under option one.

Question 2

The competitive bid purchase is largely confined to railroad, public utility, and municipal bond
  issues.
 
  Indicate whether the statement is true or false

[juliaf]

Answer to Question 1

Shareholders may prefer the compensation package that includes stock options because the options give the CEO the
incentive to maximize the price of the company's stock, thus benefiting the shareholders. A fixed salary, regardless of
stock price performance, can lead to a CEO who is willing to do the minimum necessary to maintain the job, but who is
not motivated to work extra hard for the shareholders. For every dollar the price of the stock exceeds 11 per share, the
CEO will make an additional 100,000. Thus, if the share price increases to 12.50, the profit on the stock option
(12.50 - 11.

Answer to Question 2

TRUE