Firm B wants to hire Mrs. X to manage its advertising department. The firm offered Mrs. X a three-year employment contract under which it will pay her an $94,500 annual salary in years 0, 1, and 2. Mrs. X projects that her salary will be taxed at a 25 percent rate in year 0 and a 40 percent rate in years 1 and 2. Firm Bs tax rate for the three-year period is 30 percent. Use Appendix A and Appendix B.

1. a. Assuming an 8 percent discount rate for both Firm B and Mrs. X, compute the NPV of Mrs. Xs after-tax cash flow from the employment contract and Firm Bs after-tax cost of the employment contract.
2. b. To reduce her tax cost, Mrs. X requests that the salary payment for year 0 be increased to $164,500 and the salary payments for years 1 and 2 be reduced to $59,500. How would this revision in the timing of the payments change your NPV computation for both parties?
3. c-1. Firm B responds to Mrs. Xs request with a counterproposal. It will pay her $164,500 in year 0 but only $54,500 in years 1 and 2. Compute the NPV of Firm Bs after-tax cost under this proposal.
4. c-2. From the firms perspective, is this proposal superior to its original offer ($94,500 annually for three years)?
5. d-1. Firm B responds to Mrs. Xs request with a counterproposal. It will pay her $164,500 in year 0 but only $54,500 in years 1 and 2. Complete the below table to calculate the NPV of Mrs. Xs after-tax cash flow.
6. d-2. Should Mrs. X accept the original offer or the counterproposal?

Req A Req B Req c1 Req c2 Req D1 Req D2 Assuming an 8 percent discount rate for both Firm B and Mrs. X, compute the NPV of Mrs. X's after-tax cash flow from the employment contract and Firm B's after-tax cost of the employment contract. (Deductions and Cash Outflows should be entered with a minus sign. Round discount factor(s) to 3 decimal places, all other intermediate calculations and final answers to the nearest whole dollar amount. Enter tax rate in two decimals and not in percentage.) Show less Year 0 Year 1 Year 2 Mrs. X Before-tax salary/income Marginal tax rate Tax on income I Before-tax Cashflow Tax After-tax cash flow Discount factor (8%) Present value NPV of salary received by Mrs. X Firm B Before-tax Deduction Morninal To Data Firm B Before-tax Deduction Marginal Tax Rate Tax savings Before-tax Cash flow Tax savings After-tax Cash flow Discount factor (8%) Present value NPV of salary cost to Firm B Req A Req B Req C1 Req c2 Req D1 Req D2 To reduce her tax cost, Mrs. X requests that the salary payment for year o be increased to $164,500 and the salary payments for years 1 and 2 be reduced to $59,500. How would this revision in the timing of the payments change your NPV computation for both parties? (Deductions and Cash Outflows should be entered with a minus sign. Round discount factor(s) to 3 decimal places, all other intermediate calculations and final answers to the nearest whole dollar amount. Enter tax rate in two decimals and not in percentage.) Show less Year 0 Year 1 Year 2 Mrs. X Before-tax salary/income Marginal tax rate Tax on income Before-tax Cashflow Tax After-tax cash flow Discount factor (8%) Present value NPV of salary received by Mrs. X Firm B Before-tax deduction Firm B Before-tax deduction Marginal tax rate Tax savings Before-tax Cashflow Tax Savings After-tax Cashflow Discount factor (8%) Present value NPV of salary cost to Firm B Req A Req B Req c1 Req C2 Req D1 Req D2 Firm B responds to Mrs. X's request with a counterproposal. It will pay her $164,500 in year 0 but only $54,500 in years 1 and 2. Compute the NPV of Firm B's after-tax cost under this proposal. (Deductions and Cash Outflows should be entered with a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answers to the nearest whole dollar amount. Enter tax rate in two decimals and not in percentage.) Show less Year 0 Year 1 Year 2 Before-tax Deduction Marginal tax rate Tax savings Before-tax Cashflow Tax savings After-tax Cashflow Discount factor (8%) Present value NPV of salary cost to Firm B Req A Req B Req C1 Req C2 Req D1 Reg D2 From the firm's perspective, is this proposal superior to its original offer ($94,500 annually for three years)? Req A Req B Req c1 Req C2 Reg D1 Req D2 Firm B responds to Mrs. X's request with a counterproposal. It will pay her $164,500 in year 0 but only $54,500 in years 1 and 2. Complete the below table to calculate the NPV of Mrs. X's after-tax cash flow. (Deductions and Cash Outflows should be entered with a minus sign. Round discount factor(s) to 3 decimal places, all other intermediate calculations and final answers to the nearest whole dollar amount. Enter tax rate in two decimals and not in percentage.) Show less Year 0 Year 1 Year 2 Before-tax salary/income Marginal tax rate Tax on income Before-tax Cashflow After-tax cash flow Discount factor (8%) Present value NPV of salary received by Mrs. X ed by Mrs. X F Req C2 Req D2 >