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 $94,500 annual salary in years 0, 1, and 2. Ms. Ali projects that her salary will be taxed at a 25 percent rate in year and a 40 percent rate in years 1 and 2. Firm B's tax rate for the three-year period is 30 percent. Use Appendix A and Appendix 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's after-tax cost of the employment contract. b. To reduce her tax cost, Ms. Ali 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? c-1. Firm B responds to Ms. Ali's request with a counterproposal. It will pay her $164,500 in year O but only $54,500 in years 1 and 2. Compute the NPV of Firm B's after-tax cost under this proposal. c-2. From the firm's perspective, is this proposal superior to its original offer ($94,500 annually for three years)? d-1. Firm B responds to Ms. Ali's request with a counterproposal. It will pay her $164,500 in year O but only $54,500 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? 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'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 2 94,500 Ms. All S s s Before-tax salary/income Marginal tax rate Tax on income Year 0 94,500 0.25 23,625 Year 1 94,500 0.40 37.800 0.40 S S S 37,800 s 94,500 S 23,625 X 70,875 94,500 s 37.800 x 56,700 94,500 37,800 56,700 Before-tax Cashflow Tax After-tax cash flow Discount factor (8%) Present value NPV of salary received by Ms. Ali 0.926 0.857 48,592 S s 52.504 S 70.875 171,971 S Firm B S Before-tax Deduction Marginal Tax Rate Tax savings (94,500) S 0.30 (28,350) s (94,500) 0.30 $ (94,500) 0.30 s (28,350) S (28,350) S (94,500) 0 X (94,500) $ IS Before-tax Cash flow Tax savings After-tax Cash flow Discount factor (8%) Present value NPV of salary cost to Firm B (94,500) $ (94,500) 0 x 0 X (94,500) S (94,500) 0.926 0.857 (87,507) $(80,987) S S (94,500) (262,994) S To reduce her tax cost, Ms. Ali 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 Ms. Ali 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 Ms. Ali Firm B Before-tax deduction Marginal tax rate Tax savings IS 0 S 0 S 0 Before-tax Cashflow Tax Savings After-tax Cashflow Discount factor (8%) Present value NPV of salary cost to Firm B 0 S 0 S 0 Firm B responds to Ms. Ali's request with a counterproposal. It will pay her $164,500 in year o 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 S S Before-tax Deduction Marginal tax rate Tax savings Year 0 164,500 0.25 41,125 Year 1 54,500 S 0.40 X 21,800 s Year 2 54,500 0.40 21,800 IS $ Before-tax Cashflow Tax savings After-tax Cashflow Discount factor (8%) Present value NPV of salary cost to Firm B Firm B responds to Ms. Ali's request with a counterproposal. It will pay her $164,500 in year o but only $54,500 in years 1 and 2. Compute the NPV of Ms. Ali'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 Tax After-tax cash flow Discount factor (8%) Present value NPV of salary received by Ms. Ali