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 $105,000 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 $155,000 and the salary payments for years 1 and 2 be reduced to $80,000. 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 $155,000 in year 0 but only $75,000 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 ($105,000 annually for three years)?
5. d-1. Firm B responds to Mrs. Xs request with a counterproposal. It will pay her $155,000 in year 0 but only $75,000 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?