1. Suppose a firm faces a current tax rate of35% but expects to fall to 20% in the future Employees on average face a current marginal tax rate of 12%pretax but expects the rate to fall to 20%when they retire in 15 years. The firms can earn 12% pretax on pension investment and a 10% after tax on corporate account. Employees on average can earn 10% after tax on their investment which among salary, pension and deferred compensation is tax preferred? Explain your results

2. A newly established firm wants to establish a pension plan for its employees. The firm hires you to prepare a report comparing a defined benefit pension plan with defined contribution pension plan. The firm also requires a recommendation from you as to which plan better suits them. On questioning management, you learn that the firm