Seiko's current salary is $85,500. Her marginal tax rate is 32 percent, and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for Idaho Office Supply. 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 $74,400 per year, but it allows employees to purchase one new car per year at a discount of $18,400. This discount qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, Idaho Office Supply offers her a $14,200 raise. Answer the following questions about this analysis. Required: What is the annual after-tax cost to Idaho Office Supply if it provides Seiko with the $14,200 increase in salary? Note: Ignore payroll taxes. b-1. Financially, which offer is better for Seiko on an after-tax basis? b-2. By how much is the offer better for Seiko on an after tax basis? (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 Idaho Office Supply to make her financially indifferent (after taxes) between receiving additional salary from Idaho Office Supply and accepting a position at the auto dealership? Note: Round your intermediate computations to the nearest dollar amount.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Seiko's current salary is $85,500. Her marginal tax rate is 32 percent, and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for Idaho Office Supply. 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 $74,400 per year, but it allows employees to purchase one new car per year at a discount of $18,400. This discount qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, Idaho Office Supply offers her a $14,200 raise. Answer the following questions about this analysis.

Required:

What is the annual after-tax cost to Idaho Office Supply if it provides Seiko with the $14,200 increase in salary?

Note: Ignore payroll taxes.

b-1. Financially, which offer is better for Seiko on an after-tax basis?

b-2. By how much is the offer better for Seiko on an after tax basis? (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 Idaho Office Supply to make her financially indifferent (after taxes) between receiving additional salary from Idaho Office Supply and accepting a position at the auto dealership?

Note: Round your intermediate computations to the nearest dollar amount.

 

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