A firm must choose among three alternative ways to compensate its salaried employees. It can pay them at the end of each week, at the end of every other week (bi-weekly), or at the end of each month. If the annual rate of pay is the same in each case, which compensation system will maximize the value of the firm?
A) Weekly payments
B) Bi-weekly payments
C) Monthly payments
D) It makes no difference because annual pay is the same in every case.

Question

Quizplus · Accepted Answer

Monthly payments maximize the value of the firm by allowing it to hold onto its cash longer, potentially earning interest or using it for other investments before disbursing salaries.

A Firm Must Choose Among Three Alternative Ways to Compensate