It is late 2018 and you are a successful venture capitalist currently working in Florida. Tomorrow morning you will have the opportunity to negotiate with your employer to receive some amount of deferred salary in 5 years in exchange for $100,000 of your 2018 compensation. If this compensation is not deferred, it will be paid to you on December 31, 2018, as a year-end bonus. Both you and your employer can earn a before tax rate of return of 10%. Your employers combined federal and state income tax rate is 42% and is expected to remain constant throughout the 5-year period. Because Florida does not have an individual income tax, you will pay only a federal tax of 40% on income earned in 2018. However, you are being transferred to New York at the beginning of next year, where you will be groomed for a top-level position in the firm. Thus, you expect that your combined federal, state, and NYC income tax rate will be 52% in 2019 and will remain at this level throughout the 5-year period. a. What is the highest deferred compensation payment that your employer would be willing to pay? _______________________________ b. What is the lowest deferred compensation payment that you would settle for? _______________________________ c. Can you and your employer get together and write a mutually beneficial deferred compensation contract? _______________________________

Now suppose you are married to a psychic. As you are making your computations in preparation for tomorrows meeting, your spouse informs you that he/she is getting a clear image of you lounging on the coast of Florida, while reading a copy of Deep Sea Fishing Weekly dated five years from today. Your spouse interprets this image as indicating that you will 1) snap mentally from the stress 5 years from now (2023), 2) quit your job, 3) move back to Florida where you become the captain of a small charter boat, and 4) pay federal income taxes at a 31% rate when your deferred compensation is received in the year 2023. Your spouse has never been wrong before. Under these conditions, what is the lowest deferred compensation payment that you would settle for? _______________________________ e. Given part d) can you and your employer write a mutually beneficial deferred compensation agreement? _______________________________