Firm B wants to hire Ms$.$ Ali to manage its advertising department. The firm offered Ms$.$ Ali a three$-$year employment contract under

which it will pay her an $$104,000$ annual salary in years $0,1,$ and $2.$ Ms$.$ Ali's projected tax rate is $25$ percent in year $0$ and a $40$ percent

rate in years $1$ and $2.$ Firm B$\text{'}$s tax rate for the three$-$year period is $34$ percent. Use Appendix A and A ppendix B$.$

Required:

a$.$ Assuming an $8$ percent discount rate for both Firm B and Ms$.$ Ali, compute the NPV of Ms$.$ Ali's after$-$tax cash flow from the

employment contract and Firm B$\text{'}$s after$-$tax cost of the employment contract.

b$.$ To reduce her tax cost, Ms$.$ Ali requests that the salary payment for year $0$ be increased to $$164,000$ and the salary payments for

years $1$ and $2$ be reduced to $$74,000.$ How would this revision in the timing of the payments change your NPV computation for

both parties?

c$1.$ Firm B responds to Ms$.$ Ali's request with a counterproposal. Firm B will pay Ms$.$ Ali $$164,000$ in year $0$ but only $$69,000$ in years $1$

and $2.$ Compute the NPV of Firm B$\text{'}$s after$-$tax cost under this proposal.

c$2.$ From the firm's perspective, is this proposal superior to its original offer $($ $$104,000$ annually for three years$)?$

d$1.$ Firm B responds to Ms$.$ Ali's request with a counterproposal. It will pay her $$164,000$ in year $0$ but only $$69,000$ in years $1$ and $2.$

Compute the NPV of Ms$.$ Ali's after$-$tax cash flow.

d$2.$ Should Ms$.$ Ali accept the original offer or the counterproposal?

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