!!!! NEED HELP ON C1 !!!!
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 $100,000 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 B's tax rate for the three-year period is 30 percent. Use Appendix A and Appendix a. 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. b. To reduce her tax cost, Mrs. X requests that the salary payment for year O be increased to $170,000 and the salary payments for years 1 and 2 be reduced to $65,000. How would this revision in the timing of the payments change your NPV computation for both parties? C-1. Firm B responds to Mrs. X's request with a counterproposal. It will pay her $170,000 in year O but only $60,000 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 ($100,000 annually for three years)? d-1. Firm B responds to Mrs. X's request with a counterproposal. It will pay her $170,000 in year O but only $60,000 in years 1 and 2 Complete the below table to calculate the NPV of Mrs. X's after-tax cash flow. d-2. Should Mrs. X accept the original offer or the counterproposal? Appendix A. Present Value of $1 Periods 4% 6% 7% 9% 1962 925 .889 .855 .822 .790 .760 917 842 .772 .708 .650 .731 CHOWOWO OWN- 3% 971 943 915 888 863 837 813 789 .766 .744 .722 .701 .681 .661 642 .623 .605 -587 .570 .554 943 .890 .840 .792 .747 .705 .665 .627 .592 .558 527 .497 5% 952 907 .864 .823 .784 .746 .711 .677 .645 .614 585 .557 .530 .505 481 .458 436 416 .396 .377 .703 .676 .650 .625 .601 577 .555 .534 513 494 475 456 935 .873 .816 .763 .713 .666 .623 .582 .544 .508 .475 444 415 388 .362 339 317 296 277 .258 8% 926 857 .794 .735 .681 .630 -583 -540 .500 463 429 397 .368 .340 315 292 270 250 232 215 .596 .547 .502 460 .422 388 .356 .326 .299 275 252 231 212 .194 .469 442 .417 .394 371 350 331 .312 . 178 Periods 13% 15% 20% 10% 909 .826 -751 .683 .621 .564 513 .467 424 386 COUPONOWO OWN- 11% 901 .812 731 .659 .593 .535 482 434 .391 .352 317 286 258 232 209 .188 . 170 .153 .138 . 124 12% .893 .797 .712 .636 .567 .507 452 404 .361 322 287 257 .885 783 .693 .613 543 .480 .425 .376 .333 295 261 231 204 .181 . 160 .141 .125 .111 098 .087 14% .877 .769 .675 .592 .519 .456 .400 351 .308 270 237 208 .182 160 .140 .123 . 108 095 .083 .073 870 .756 .658 .572 .497 .432 376 327 .284 247 215 .187 .163 .141 .123 .107 .093 .081 070 .061 .833 .694 .579 .482 .402 .335 279 233 .194 .162 .135 .112 .093 .078 350 229 .319 290 263 239 218 .198 .180 . 164 065 205 .183 .163 .146 .130 .116 .104 .054 .045 ,038 .031 .026 .149 Appendix B Present Value of Annuity of $1 Periods 3% 4% 7% 8% PODOUAWNO VOULUN .971 1.913 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 13.166 13.754 14.324 14.877 962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590 5% 952 1.859 2.723 3.546 4.329 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 10.380 10.838 11.274 11.690 12.085 12.462 943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 10.106 10.477 10.828 11.158 11.470 .935 1.808 2.624 3.387 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594 926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 8.851 9.122 9.372 9.604 9.818 917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129 Periods 10% 12% 13% 14% 20% WOWO VOU OWN- 909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 11% 901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 5.889 6.207 6.492 6.750 6.982 7.191 7.379 7.549 7.702 7.839 7.963 .893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469 .885 1.668 2.361 2.974 3.517 3.998 4.423 4.799 5.132 5.426 5.687 5.918 6.122 6.302 6.462 6.604 6.729 6.840 6.938 7.025 .877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623 15% .870 1.626 2.283 2.855 3.352 3.784 4.160 4.487 4.772 5.019 5.234 5.421 5.583 5.724 5.847 5.954 6.047 6.128 6.198 6.259 .833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.843 4.870 Complete this question by entering your answers in the tabs below. Reg A Req B Reg C1 Reg C2 Req D1 Reg D2 To reduce her tax cost, Mrs. X requests that the salary payment for year o be increased to $170,000 and the salary payments for years 1 and 2 be reduced to $65,000. 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 Mrs. X $ $ $ Before-tax salary/income Marginal tax rate Tax on income Year 0 170,000 0.25 42,500 Year 1 65,000 0.40 26,000 Year 2 65,000 0.40 26,000 $ $ $ Before-tax Cashflow Tax $ $ 170,000 (42,500) 127,500 $ $ 65,000 (26,000) 39,000 0.926 36,114 $ $ After-tax cash flow Discount factor (8%) Present value NPV of salary received by Mrs. X 65,000 (26,000) 39,000 0.857 33,423 $ $ $ $ 127,500 197,037 Firm B $ $ Before-tax deduction Marginal tax rate Tax savings (170,000) $ 0.30 (51,000) $ (65,000) 0.30 (19,500) (65,000) 0.30 (19,500) $ $ (170,000) 51,000 (119,000) $ $ Before-tax Cashflow Tax Savings After-tax Cashflow Discount factor (8%) Present value NPV of salary cost to Firm B (65,000)| 19,500 (45,500) 0.926 (42,133) $ (65,000) 19,500 (45,500) 0.857 (38,994) $ $ $ $ (119,000) 200,127) Complete this question by entering your answers in the tabs below. Reg A Req B Reg C1 Reg C2 Req Di Req D2 Firm B responds to Mrs. X's request with a counterproposal. It will pay her $170,000 in year o but only $60,000 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
