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Posted on Jul 26, 2024

Please answer in 3 decimal places. Firm B wants to hire Mrs. X to manage its advertising department. The firm offered Mrs. X a three-year

Please answer in 3 decimal places. image text in transcribed

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 $97,500 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 34 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 $147,500 and the salary payments for years 1 and 2 be reduced to $72,500. 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 $147,500 in year O but only $67.500 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 ($97,500 annually for three years)? d-1. Firm B responds to Mrs. X's request with a counterproposal. It will pay her $147.500 in year O but only $67,500 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? Complete this question by entering your answers in the tabs below. Present Value of $1 Periods 4% 6% 8% NOVOWN 1962 925 889 .855 .822 790 760 5% 952 1907 864 .823 784 .746 711 731 .677 3% 971 943 915 888 863 837 813 789 .766 1744 722 701 681 .661 .642 623 605 587 570 554 645 614 585 .943 .890 .840 .792 .747 .705 .665 .627 .592 .558 527 .497 .469 442 417 .394 371 .350 331 .312 703 676 650 625 601 577 555 534 513 494 475 456 7% 935 .873 816 .763 .713 .666 .623 582 .544 508 475 444 415 388 362 339 317 296 277 258 .926 857 .794 .735 681 630 583 .540 .500 ,463 .429 397 368 .340 315 292 270 .250 232 215 9% 917 842 .772 .708 .650 .596 547 .502 460 422 388 356 326 299 275 252 231 212 194 178 557 530 1505 481 .458 436 416 396 377 20 Periods 13% 14% 15% 20% 10% 909 826 751 11% 901 812 721 12% 893 797 712 885 783 693 877 1769 675 870 756 833 694 70 475 444 .722 .701 .681 .661 .642 .623 605 587 570 554 .650 625 601 .577 555 .534 .513 494 475 456 388 356 326 299 275 585 557 530 505 481 .458 436 416 396 377 527 497 469 442 417 394 429 397 368 340 .315 292 270 415 388 .362 339 317 296 277 258 252 371 .231 350 250 212 331 .312 232 215 .194 .178 Periods 10% 12% 13% 15% 1909 .826 870 .756 658 572 20% 833 .694 579 482 497 402 OBNOVODWN - 751 .683 .621 564 .513 ,467 .424 386 350 1319 290 263 239 218 198 180 11% .901 812 731 1659 593 535 482 434 391 352 317 286 258 232 209 188 .170 153 138 124 .893 797 712 636 567 507 452 404 361 322 287 885 783 .693 .613 543 480 425 376 333 295 261 231 204 181 14% .877 .769 .675 592 .519 456 400 351 .308 270 237 208 .182 .160 432 376 327 284 247 215 257 229 205 183 163 146 130 116 104 .140 335 279 233 194 162 .135 .112 093 078 065 054 045 038 031 026 160 141 125 187 .163 141 123 107 093 081 070 061 .123 . 108 .095 083 073 .111 098 087 164 149 20 Appendix A Present Value of $1 Periods 5% 9% 6% 68 917 842 .772 708 3% 971 .943 .915 .888 .863 .837 813 .789 .766 .744 .722 .701 .681 .661 .642 .650 596 547 DOOGENHOVOU AWN- 4% 962 925 889 855 822 .790 760 .731 .703 .676 650 625 601 577 .555 534 513 494 952 1907 .864 823 .784 .746 1711 .677 645 .614 1585 943 890 .840 .792 .747 -705 .665 .627 .592 .558 527 502 460 422 935 .873 .816 .763 .713 666 .623 .582 544 .508 475 444 415 388 362 339 317 .296 277 .258 857 794 .735 681 630 583 540 500 .463 429 397 368 340 .315 292 270 250 232 215 557 .497 469 442 388 356 326 299 275 252 231 212 417 530 505 481 .458 .436 416 396 377 .623 605 .587 .570 .554 1394 .371 .350 331 312 475 194 178 19 20 .456 14% 15% 20% Periods 10% 11% 901 812 731 12% .893 797 712 .909 826 .751 13% 885 1783 .693 877 769 833 694 579 870 756 658 675 .915 .888 .863 .837 .813 789 766 744 .722 ..701 .681 .661 .642 .623 .605 .587 570 .554 1.925 .889 .855 822 790 .760 .731 .703 676 .650 .625 .601 577 .555 .534 513 .494 .475 .456 1907 .864 .823 784 ..746 ..711 .677 -645 .614 .585 .557 .530 .505 .481 458 .436 416 396 377 1890 .840 .792 .747 705 .665 .627 .592 .558 .527 1873 2816 .763 713 .666 .623 1582 .544 .508 475 1857 794 .735 .681 .630 583 .540 .500 .463 .429 .397 .368 .340 .315 292 .270 250 232 215 1842 772 .708 .650 596 .547 .502 .460 422 .388 .356 ..326 299 275 252 .231 212 .194 .178 .497 .469 442 .417 .394 .371 .350 .331 .312 .415 .388 .362 .339 .317 296 .277 258 Periods 12% 13% 14% 15% 20% 893 10% 0909 .826 .751 683 .621 .564 .513 .467 424 386 .350 319 290 263 1797 .712 -636 567 1507 .452 .833 694 .579 .482 -402 .335 279 233 404 345678901231661220 11% 0901 .812 ..731 _659 .593 535 482 434 391 352 317 286 258 232 209 188 170 153 138 .124 .870 .756 .658 .572 .497 432 1376 .327 284 247 215 187 163 194 .885 .783 693 .613 .543 480 425 376 .333 1295 (261 231 204 181 160 .141 .125 111 098 .087 .361 .322 .287 257 229 205 .183 .163 146 130 .116 104 .877 769 -675 .592 519 .456 2.400 .351 .308 270 237 208 .182 160 (140 .123 108 .095 .083 073 239 1.123 _107 162 135 .112 (093 078 .065 .054 .045 038 031 026 218 .198 .180 .164 093 2081 070 .061 (149 Year 0 Year 1 Year 2 Mrs. X 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 Mrs. X Firm B Before-tax Deduction Marginal Tax Rate Tax savings Before-tax Cash flow Tax savings After-tax Cash flow Discount factor (8%) Present value NPV of salary cost to Firm B Year 0 Mrs. X 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 Mrs. X Firm B 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 Req A Reg B Reg C1 Req C2 Req D1 Req D2 Firm B responds to Mrs. X's request with a counterproposal. It will pay her $147,500 in y and 2. Compute the NPV of Firm B's after-tax cost under this proposal. (Deductions and a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and dollar amount. Enter tax rate in two decimals and not in percentage.) 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 Complete this question by entering your answers in the tabs below. Req A Req B Req C1 Req C2 Reg D1 Req D2 From the firm's perspective, is this proposal superior to its original offer ($97,500 annually for t Reg A Req B Req C1 Req C2 Req D1 Req D2 Firm B responds to Mrs. X's request with a counterproposal. It will pay her $147,500 in year 01 and 2. Complete the below table to calculate the NPV of Mrs. X's after-tax cash flow. (Deductior be entered with a minus sign. Round discount factor(s) to 3 decimal places, all other intermedia answers to the nearest whole dollar amount. Enter tax rate in two decimals and not in percenta 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 Mrs. X Complete this question by entering your answers in the tabs below. 9.22 Req A Req B Req C1 Requi Req c2 Req D1 Reg D2 Rego2 Should Mrs. X accept the original offer or the counterproposal?