TPC 15-02 (Static) (LO 15-6, 15-7) Mr. Remling is entitled to a $5,200 bonus this year (year 0). His employer gives him two options. He can either receive his $5,200 bonus in cash, or the employer will credit him with $4,500 deferred compensation. Under the deferral option, the employer will accrue 6 percent annual interest on the deferred compensation. Consequently, the employer will pay $8,059 ($4,500 plus compounded interest) to Mr. Remling when he retires in year 10. In making your calculations, use a 5 percent discount rate. Use Appendix A. Required: a-1. Compute NPV assuming Mr. Remling's current marginal tax rate is 32 percent, and his marginal tax rate at retirement will be 12 percent. a-2. In order to maximize the NPV, which option should Mr. Remling accept? b-1. Compute NPV assuming Mr. Remling's current marginal tax rate is 32 percent, and his marginal tax rate at retirement will be 32 percent. b-2. In order to maximize the NPV, which option should Mr. Remling accept? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B1 Req B2 Compute NPV assuming Mr. Remling's current marginal tax rate is 32 percent, and his marginal tax rate at retirement will be 12 percent. (Round your intermediate computations and final answers to the nearest whole dollar amount.) Amount NPV of the current compensation NPV of the deferred compensation Req A1 Req A2 Req B1 Req B2 In order to maximize the NPV, which option should Mr. Remling accept? Current compensation O Deferred compensation Req A1 Req A2 Req B1 Req B2 Compute NPV assuming Mr. Remling's current marginal tax rate is 32 percent, and his marginal tax rate at retirement will be 32 percent. (Round your intermediate computations and final answers to the nearest whole dollar amount.) Amount NPV of the current compensation NPV of the deferred compensation In order to maximize the NPV, which option should Mr. Remling accept? Current compensation Deferred compensation APPENDIX A Present Value of S1 9% 917 .842 .772 .708 Periods 1 2 3 4 5 6 7 S 9 10 11 12 13 14 15 16 17 18 19 20 3% 971 943 915 .888 .863 .837 .813 .789 .766 .744 .722 .701 .681 .661 .642 .623 .605 587 570 .554 4% 962 925 .889 .855 .822 .790 .760 .731 .703 .676 .650 .625 .601 577 .555 .534 513 494 475 456 5% 952 907 .864 .823 .784 .746 .711 .677 .645 .614 585 557 530 505 481 .458 436 416 396 377 6% 943 .890 .840 .792 .747 .705 .665 .627 .592 558 527 .497 469 442 417 394 371 350 331 312 7% 935 .873 .816 .763 .713 .666 .623 .582 544 .508 475 .444 415 388 362 339 317 .296 8% 926 .857 .794 .735 .681 .630 583 540 .500 .463 429 397 368 340 315 292 270 .250 .232 .215 .650 .596 547 502 460 .422 388 356 326 .299 .275 .252 .231 .212 .194 .178 277 .258 Periods 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 10% 909 .826 .751 .683 .621 564 513 467 424 386 350 319 .290 .263 .239 .218 .198 .180 .164 .149 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 .229 .205 .183 .163 .146 .130 .116 .104 13% .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 15% .870 .756 .658 .572 497 432 376 327 .284 .247 .215 .187 .163 .141 .123 .107 .093 .081 .070 ,061 20% .833 .694 579 .482 402 335 .279 .233 .194 .162 .135 .112 .093 -078 .065 054 .045 038 .031 .026