Seiko’s current salary is $85,000. Her marginal tax rate is 30 percent and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for an office equipment company. 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 $75,000 per year, but it allows employees to purchase one new car per year at a discount of $15,000. This discount qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, her current employer offers her a $10,000 raise. Answer the following questions about this analysis.

a) What is the annual after-tax cost to her current employer (office equipment company that has a 35 percent marginal tax rate) to provide Seiko with the

$10,000 increase in salary?

b) Financially, which offer is better for Seiko on an after-tax basis and by how much? (Assume that Seiko is going to purchase the new car whether she switches jobs or not.)

c) What salary would Seiko need to receive from her current employer to make her financially indifferent (after taxes) between receiving additional salary from her current employer and accepting a position at the auto dealership?