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Payback period for shareholders

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Reference no: EM131105196

Your company's CEO is old and senile, damaging both the company's reputation along with the shareholders' value. Last year, his salary and bonus combined to be $12.5 million. For $25 million, you can buy out his contract today while spending $10 million to recruit a new CEO (also assumed to occur today - the new CEO will have the same compensation package as the old one). You estimate that the company's market valuation will increase shareholder value by $15 million on the same date, the date of the announcement. In addition, profits will increase by $5 million per year for the next 10 years. All payments can be viewed as being made by shareholders; calculate the payback period for shareholders on this investment.

Reference no: EM131105196

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