Question
Seikos current salary is $98,500. Her marginal tax rate is 32 percent, and she fancies European sports cars. She purchases a new auto each year.
Seikos current salary is $98,500. Her marginal tax rate is 32 percent, and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for Idaho Office Supply. Her friend, knowing of her interest in sports cars, tells her about a manager position at the local BMW and Porsche dealer. The new position pays only $87,100 per year, but it allows employees to purchase one new car per year at a discount of $17,700. This discount qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, Idaho Office Supply offers her a $12,400 raise. Answer the following questions about this analysis.
a. What is the annual after-tax cost to Idaho Office Supply if it provides Seiko with the $12,400 increase in salary? (Ignore payroll taxes.)
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