e answer within 30 min
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
please answer within 30 minutes.
![Requlred Information
(The following information applies to the questions displayed below.]
XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 30 percent of
their salary for five years. For purposes of this problem, Ignore payroll taxes in your computations. (Use Table 1) (Round
your Intermedlate calculations and final answers to the nearest whole dollar amount.)
a. Assume XYZ has a marginal tax rate of 21 percent for the foreseeable future and earns an after-tax rate of return of 10 percent on its
assets. Joel Johnson, XYZ's VP of finance, is attempting to determine what amount of deferred compensation XYZ should be willing to
pay in five years that would make XYZ indifferent between paying the current salary of $17,400 and paying the deferred
compensation. What amount of deferred compensation would accomplish this objective?
Deferred compensation
b. Assume Julle, an XYZ employee, has the optlon of participating In XYZ's deferred compensation plan. Julie's marginal tax rate is 37
percent, and she expects the rate to remain constant over the next five years. Julle is trying to decide how much deferred
compensation she will need to receive from XYZ in five years to make her indifferent between receiving the current salary of $17,400
and receiving the deferred compensation payment. If Julle takes the salary. she will invest it in a taxable corporate bond paying
interest at 6 percent annually (after taxes). What amount of deferred compensation would accomplish this objective?
Deferred compensation
Future Value of $1
Periods
1.0%
2.0%
3.0%
3.75%
4.0%
4.25%
5.0%
6.0%
7.0%
1.01000
1.02000
1.03000
1.03750
1.04000
1.04250
1.05000
1.06000
1.07000
1.12360
1.14490
1.02010
1.03030
1.04040
1.06090
1.07641
1.08160
1.08681
1.10250
3
1.06121
1.09273
1.11677
1.12486
1.13300
1.15763
1.19102
1.22504
1.18115
1.23135
4.
1.04060
1.08243
1.12551
1.15865
1.16986
1.21551
1.26248
1.31080
5
1.05101
1.10408
1.15927
1.20210
1.21665
1.27628
1.33823
1.40255
6
1.06152
1.12616
1.19405
1.24718
1.26532
1.28368
1.34010
1.41852
1.50073
1.07214
1.14869
1.22987
1.29395
1.31593
1.33824
1.40710
1.50363
1.60578
1.08286
1.17166
1.26677
1.34247
1.36857
1.39511
1.47746
1.59385
1.71819
1.45440
1.51621
1.68948
1.09369
1.10462
1.19509
1.30477
1.39281
1.42331
1.55133
1.83846
10
1.21899
1.34392
144504
1.48024
1.62889
1.79085
1.96715
11
1.11567
1.24337
1.38423
1.49923
1.53945
1.58065
1.71034
1.89830
2.10485
12
1.12683
1.26824
1.42576
1.55545
1.60103
1.64783
1.79586
2.01220
225219
13
1.13809
1.29361
1.46853
1.61378
1.66507
1.71786
1.88565
2.13293
2.40985
2.57853
1.14947
1.16097
14
1.31948
1.51259
1.67430
1.73168
1.79087
1.97993
226090
1.73709
1.80223
15
1.34587
1.55797
1.80094
186699
2.07893
2.39656
2.75903
16
1.17258
1.37279
1.60471
1.87298
1.94633
2.18287
2.54035
2.95216
17
1.18430
1.40024
1.65285
1.86981
1.94790
2.02905
2.29202
2.69277
3.15882
3.37993
2.02582
2.10685
18
1.19615
1.42825
1.70243
1.93993
2.11529
2.40662
2.85434
1.75351
1.80611
2.01268
2.08815
251017
19
1.20811
1.45681
2.20519
2.52695
3.02560
3.61653
3.86968
1.22019
1.28243
20
1.48595
2.19112
2.29891
2.65330
3.20714
25
1.64061
2.09378
2.66584
2.83075
3.38635
4.29187
542743
30
1.34785
1.81136
242720
3.01747
3.24340
3.48564
432194
5.74349
7.61226
11.0%
12.0%
13.0%
15.0%
20.0%
25.0%
Periods
8.0%
9.0%
10.0%
14.0%
1.08000
1.09000
1.10000
1.11000
1.12000
1.13000
1.14000
1.15000
1.20000
1.25000
2
1.16640
1.18810
1.21000
1.23210
1.25440
1.27690
1.29960
1.32250
1.44000
1.56250
3
1.25971
1.29503
1.33100
1.36763
1.40493
1.44290
1.48154
1.52088
1.72800
1.95313
2.07360
1.36049
1.46933
4.
1.41158
1.46410
1.51807
1.57352
1.63047
1.68896
1.74901
2.44141
1.53862
1.61051
1.68506
1.76234
1.84244
1.92541
2.01136
248832
3.05176
6
1.58687
1.67710
1.77156
1.87041
1.97382
2.08195
2.19497
231306
2.98598
3.81470
1.71382
1.82804
1.94872
2.07616
221068
2.35261
2.50227
2.66002
3.58318
4.76837
185093
1.99900
2.15892
233164
1.99256
2.14359
2.30454
247596
2.65844
2.85259
3.05902
4.29982
5.96046
2.17189
2.35795
2.55804
2.77308
3.00404
3.25195
3.51788
5.15978
7.45058
2.36736
2.59374
2.83942
3.10585
3.39457
3.70722
4.04556
6.19174
9.31323
10
3.83586
433452
11
2.58043
2.85312
3.15176
3.47855
4.22623
4.65239
743008
11.64153
12
251817
2.81266
3.13843
3.49845
3.89598
4.81790
5.35025
8.91610
14.55192
13
2.71962
3.06580
3.45227
3.88328
4.36349
4.89801
5.49241
6.15279
10.69932
18.18989
6.26135
7.13794
14
293719
3.34173
3.79750
431044
4.88711
5.53475
7.07571
1283918
22.73737
15
3.17217
3.64248
4.17725
4.78459
5.47357
6.25427
8.13706
15.40702
28.42171
16
3.42594
3.97031
4.59497
5.31089
6.13039
7.06733
8.13725
9.35762
1848843
35.52714
17
3.70002
4.32763
5.05447
5.89509
6.86604
7.98608
9.27646
10.76126
22.18611
44.40892
18
3.99602
4.71712
5.55992
6.54355
7.68997
9.02427
10.57517
12.37545
26.62333
55.51115
69.38894
86.73617
19
431570
5.14166
6.11591
7.26334
8.61276
10.19742
12.05569
14.23177
31.94800
38.33760
95.39622
237.37631
20
4.66096
5.60441
6.72750
8.06231
9.64629
11.52309
13.74349
16.36654
25
6.84848
8.62308
10.83471
13.58546
17.00006
21.23054
26.46192
32.91895
264.69780
30
10.06266
13.26768
17.44940
22.89230
29.95992
39.11590
50.95016
66.21177
807.79357](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6c04563b-f8ed-4559-9996-1120b05eaf83%2Fa028f9df-9898-41ee-99e1-0826536d6f64%2F11icnga_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Requlred Information
(The following information applies to the questions displayed below.]
XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 30 percent of
their salary for five years. For purposes of this problem, Ignore payroll taxes in your computations. (Use Table 1) (Round
your Intermedlate calculations and final answers to the nearest whole dollar amount.)
a. Assume XYZ has a marginal tax rate of 21 percent for the foreseeable future and earns an after-tax rate of return of 10 percent on its
assets. Joel Johnson, XYZ's VP of finance, is attempting to determine what amount of deferred compensation XYZ should be willing to
pay in five years that would make XYZ indifferent between paying the current salary of $17,400 and paying the deferred
compensation. What amount of deferred compensation would accomplish this objective?
Deferred compensation
b. Assume Julle, an XYZ employee, has the optlon of participating In XYZ's deferred compensation plan. Julie's marginal tax rate is 37
percent, and she expects the rate to remain constant over the next five years. Julle is trying to decide how much deferred
compensation she will need to receive from XYZ in five years to make her indifferent between receiving the current salary of $17,400
and receiving the deferred compensation payment. If Julle takes the salary. she will invest it in a taxable corporate bond paying
interest at 6 percent annually (after taxes). What amount of deferred compensation would accomplish this objective?
Deferred compensation
Future Value of $1
Periods
1.0%
2.0%
3.0%
3.75%
4.0%
4.25%
5.0%
6.0%
7.0%
1.01000
1.02000
1.03000
1.03750
1.04000
1.04250
1.05000
1.06000
1.07000
1.12360
1.14490
1.02010
1.03030
1.04040
1.06090
1.07641
1.08160
1.08681
1.10250
3
1.06121
1.09273
1.11677
1.12486
1.13300
1.15763
1.19102
1.22504
1.18115
1.23135
4.
1.04060
1.08243
1.12551
1.15865
1.16986
1.21551
1.26248
1.31080
5
1.05101
1.10408
1.15927
1.20210
1.21665
1.27628
1.33823
1.40255
6
1.06152
1.12616
1.19405
1.24718
1.26532
1.28368
1.34010
1.41852
1.50073
1.07214
1.14869
1.22987
1.29395
1.31593
1.33824
1.40710
1.50363
1.60578
1.08286
1.17166
1.26677
1.34247
1.36857
1.39511
1.47746
1.59385
1.71819
1.45440
1.51621
1.68948
1.09369
1.10462
1.19509
1.30477
1.39281
1.42331
1.55133
1.83846
10
1.21899
1.34392
144504
1.48024
1.62889
1.79085
1.96715
11
1.11567
1.24337
1.38423
1.49923
1.53945
1.58065
1.71034
1.89830
2.10485
12
1.12683
1.26824
1.42576
1.55545
1.60103
1.64783
1.79586
2.01220
225219
13
1.13809
1.29361
1.46853
1.61378
1.66507
1.71786
1.88565
2.13293
2.40985
2.57853
1.14947
1.16097
14
1.31948
1.51259
1.67430
1.73168
1.79087
1.97993
226090
1.73709
1.80223
15
1.34587
1.55797
1.80094
186699
2.07893
2.39656
2.75903
16
1.17258
1.37279
1.60471
1.87298
1.94633
2.18287
2.54035
2.95216
17
1.18430
1.40024
1.65285
1.86981
1.94790
2.02905
2.29202
2.69277
3.15882
3.37993
2.02582
2.10685
18
1.19615
1.42825
1.70243
1.93993
2.11529
2.40662
2.85434
1.75351
1.80611
2.01268
2.08815
251017
19
1.20811
1.45681
2.20519
2.52695
3.02560
3.61653
3.86968
1.22019
1.28243
20
1.48595
2.19112
2.29891
2.65330
3.20714
25
1.64061
2.09378
2.66584
2.83075
3.38635
4.29187
542743
30
1.34785
1.81136
242720
3.01747
3.24340
3.48564
432194
5.74349
7.61226
11.0%
12.0%
13.0%
15.0%
20.0%
25.0%
Periods
8.0%
9.0%
10.0%
14.0%
1.08000
1.09000
1.10000
1.11000
1.12000
1.13000
1.14000
1.15000
1.20000
1.25000
2
1.16640
1.18810
1.21000
1.23210
1.25440
1.27690
1.29960
1.32250
1.44000
1.56250
3
1.25971
1.29503
1.33100
1.36763
1.40493
1.44290
1.48154
1.52088
1.72800
1.95313
2.07360
1.36049
1.46933
4.
1.41158
1.46410
1.51807
1.57352
1.63047
1.68896
1.74901
2.44141
1.53862
1.61051
1.68506
1.76234
1.84244
1.92541
2.01136
248832
3.05176
6
1.58687
1.67710
1.77156
1.87041
1.97382
2.08195
2.19497
231306
2.98598
3.81470
1.71382
1.82804
1.94872
2.07616
221068
2.35261
2.50227
2.66002
3.58318
4.76837
185093
1.99900
2.15892
233164
1.99256
2.14359
2.30454
247596
2.65844
2.85259
3.05902
4.29982
5.96046
2.17189
2.35795
2.55804
2.77308
3.00404
3.25195
3.51788
5.15978
7.45058
2.36736
2.59374
2.83942
3.10585
3.39457
3.70722
4.04556
6.19174
9.31323
10
3.83586
433452
11
2.58043
2.85312
3.15176
3.47855
4.22623
4.65239
743008
11.64153
12
251817
2.81266
3.13843
3.49845
3.89598
4.81790
5.35025
8.91610
14.55192
13
2.71962
3.06580
3.45227
3.88328
4.36349
4.89801
5.49241
6.15279
10.69932
18.18989
6.26135
7.13794
14
293719
3.34173
3.79750
431044
4.88711
5.53475
7.07571
1283918
22.73737
15
3.17217
3.64248
4.17725
4.78459
5.47357
6.25427
8.13706
15.40702
28.42171
16
3.42594
3.97031
4.59497
5.31089
6.13039
7.06733
8.13725
9.35762
1848843
35.52714
17
3.70002
4.32763
5.05447
5.89509
6.86604
7.98608
9.27646
10.76126
22.18611
44.40892
18
3.99602
4.71712
5.55992
6.54355
7.68997
9.02427
10.57517
12.37545
26.62333
55.51115
69.38894
86.73617
19
431570
5.14166
6.11591
7.26334
8.61276
10.19742
12.05569
14.23177
31.94800
38.33760
95.39622
237.37631
20
4.66096
5.60441
6.72750
8.06231
9.64629
11.52309
13.74349
16.36654
25
6.84848
8.62308
10.83471
13.58546
17.00006
21.23054
26.46192
32.91895
264.69780
30
10.06266
13.26768
17.44940
22.89230
29.95992
39.11590
50.95016
66.21177
807.79357
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