Additional Ch 3 HW problem on Employee Low or No Interest Loans Tricia, an avid skier, is employed by Elmwood Inc. She has asked her employer for a $100,000 interest free loan that will be used to acquire a Whistler condo, which would be used exclusively for Tricia's ski trips. As she is a highly valued employee, Elmwood is considering her request. Assume Tricia can acquire a regular mortgage at a rate of 3%, and her marginal tax rate is 30%. Required: i) If Tricia borrows from the bank, how much additional salary would she need to service the loan? ii) If Tricia obtains a low interest loan from her employer of 1.1%, what is the amount of taxable benefit arising from this loan? Assume Tricia receives the loan on February 1 of the year and the prescribed interest rates for the four quarters are 4%. 2%, 6% and 8%. Use simple interest for all calculations.
Additional Ch 3 HW problem on Employee Low or No Interest Loans Tricia, an avid skier, is employed by Elmwood Inc. She has asked her employer for a $100,000 interest free loan that will be used to acquire a Whistler condo, which would be used exclusively for Tricia's ski trips. As she is a highly valued employee, Elmwood is considering her request. Assume Tricia can acquire a regular mortgage at a rate of 3%, and her marginal tax rate is 30%. Required: i) If Tricia borrows from the bank, how much additional salary would she need to service the loan? ii) If Tricia obtains a low interest loan from her employer of 1.1%, what is the amount of taxable benefit arising from this loan? Assume Tricia receives the loan on February 1 of the year and the prescribed interest rates for the four quarters are 4%. 2%, 6% and 8%. Use simple interest for all calculations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Additional Ch 3 HW problem on Employee Low or No Interest Loans
Tricia, an avid skier, is employed by Elmwood Inc. She has asked her employer for a $100,000 interest free loan that
will be used to acquire a Whistler condo, which would be used exclusively for Tricia's ski trips. As she is a highly
valued employee, Elmwood is considering her request.
Assume Tricia can acquire a regular mortgage at a rate of 3%, and her marginal tax rate is 30%.
Required:
i) If Tricia borrows from the bank, how much additional salary would she need to service the loan?
ii) If Tricia obtains a low interest loan from her employer of 1.1%, what is the amount of taxable benefit arising from
this loan? Assume Tricia receives the loan on February 1 of the year and the prescribed interest rates for the four
quarters are 4%. 2%, 6% and 8%. Use simple interest for all calculations.
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