Suppose a firm faces a current tax rate of 21% but expects this rate to increase to 26% in the future. Employees on average face a current marginal tax rate of 41% but expect this rate to fall to 22% when they retire in 20 years. The firm can earn a 14% pretax return on its pension investments and a 12% after-tax return on corporate investments. Employees on average can earn 10% after tax on their investments. The firm is considering paying a $1,000 bonus in the current year, but the firm would also consider putting the $1,000 in the employee's pension account. Moreover, the firm has stated that it would also be willing to give employees deferred compensation in 20 years (but the managers need help determining the amount). Based on this information, address the following questions: Q1: What amount is the employer willing to pay the employee in deferred compensation in lieu of a $1,000 current year bonus? [ Select] $10,298 $12,725 $9,861 $8,000 None of the available choices are correct. [ Select] Q2: What is the employee's after-tax accumulation at the end of the proposed horizon if the employee opts to receive the payout via a bonus? [Select] Select] $3.969 $4,671 None of the available choices are correct. $6,123 $3,124 Q3: What is the employee's after-tax accumulation at the end of the proposed horizon if the employee to receive the payout via deferred compensation? [ Select] [ Select] $8.128 None of the available choices are correct. $8,032 $10,924 $9,162 Suppose a firm faces a current tax rate of 21% but expects this rate to increase to 26% in the future. Employees on average face a current marginal tax rate of 41% but expect this rate to fall to 22% when they retire in 20 years. The firm can earn a 14% pretax return on its pension investments and a 12% after-tax return on corporate investments. Employees on average can earn 10% after tax on their investments. The firm is considering paying a $1,000 bonus in the current year, but the firm would also consider putting the $1,000 in the employee's pension account. Moreover, the firm has stated that it would also be willing to give employees deferred compensation in 20 years (but the managers need help determining the amount). Based on this information, address the following questions: Q1: What amount is the employer willing to pay the employee in deferred compensation in lieu of a $1,000 current year bonus? [ Select] $10,298 $12,725 $9,861 $8,000 None of the available choices are correct. [ Select] Q2: What is the employee's after-tax accumulation at the end of the proposed horizon if the employee opts to receive the payout via a bonus? [Select] Select] $3.969 $4,671 None of the available choices are correct. $6,123 $3,124 Q3: What is the employee's after-tax accumulation at the end of the proposed horizon if the employee to receive the payout via deferred compensation? [ Select] [ Select] $8.128 None of the available choices are correct. $8,032 $10,924 $9,162
