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You plan to retire 20 years from now. In the current year, you face a 30% tax rate on ordinary income. But, in 20 years
- You plan to retire 20 years from now. In the current year, you face a 30% tax rate on ordinary income. But, in 20 years from now at retirement, you expect to face a 15% rate because you wont have any wage income to put you in a higher tax bracket. Assume that for the entire period any dividends and long-term capital gains you have are taxed at a 15% rate. You expect that you can earn an after-tax rate of return of 8% on any investments you make yourself. Your companys pension plan earns a 12% pre-tax rate of return, and the company itself earns a 10% after-tax return on its own projects. The company currently faces a 21% tax rate but expects it will face a 35% rate in 30 years. How much in current bonus now (pre-tax), B0, would the company have to pay you to make you indifferent between this current compensation and future pre-tax deferred compensation of $5,000?
- $629.41
- $902.48
- $1,072.74
- $1,302.61
None of the above. Write in your answer: $____________________________
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