Homework Help is Here – Start Your Trial Now!
Business
Accounting
XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 35 percent of their salary for five years. For purposes of this problem, ignore payroll taxes in your computations. (Use Table 1.) Note: Round your intermediate 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 9 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 $17,700 and paying the deferred compensation. What amount of deferred compensation would accomplish this objective? b. Assume Julie, an XYZ employee, has the option 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. Julie 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 $17,700 and receiving the deferred compensation payment. If Julie takes the salary, she will invest it in a taxable corporate bond paying interest at 5 percent annually (after taxes). What amount of deferred compensation would accomplish this objective?

XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 35 percent of their salary for five years. For purposes of this problem, ignore payroll taxes in your computations. (Use Table 1.) Note: Round your intermediate 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 9 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 $17,700 and paying the deferred compensation. What amount of deferred compensation would accomplish this objective? b. Assume Julie, an XYZ employee, has the option 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. Julie 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 $17,700 and receiving the deferred compensation payment. If Julie takes the salary, she will invest it in a taxable corporate bond paying interest at 5 percent annually (after taxes). What amount of deferred compensation would accomplish this objective?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

 

XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 35 percent of their salary for five years. For purposes of this problem, ignore payroll taxes in your computations. (Use Table 1.)

Note: Round your intermediate 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 9 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 $17,700 and paying the deferred compensation. What amount of deferred compensation would accomplish this objective?

b. Assume Julie, an XYZ employee, has the option 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. Julie 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 $17,700 and receiving the deferred compensation payment. If Julie takes the salary, she will invest it in a taxable corporate bond paying interest at 5 percent annually (after taxes). What amount of deferred compensation would accomplish this objective?

Future Value of $1 n 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 25 1.0% 1.01000 1.02010 1.03030 1.04060 1.05101 1.06152 1.07214 1.08286 1.09369 1.10462 1.11567 1.12683 1.13809 1.14947 1.16097 1.17258 1.18430 1.19615 1.20811 1.22019 1.28243 2.0% 1.02000 1.04040 1.06121 1.08243 1.10408 1.12616 1.14869 1.17166 1.19509 1.21899 1.24337 1.26824 1.29361 1.31948 1.34587 1.37279 1.40024 1.42825 1.45681 1.48595 1.64061 1.03000 1.06090 1.09273 1.12551 1.15927 1.19405 1.22987 1.26677 3.75% 1.03750 1.07641 1.11677 1.15865 1.20210 1.24718 1.29395 1.34247 1.30477 1.39281 1.34392 1.38423 1.42576 1.46853 1.51259 1.55797 1.60471 1.65285 1.70243 1.75351 1.80611 1.44504 1.49923 1.55545 1.61378 1.67430 1.73709 1.80223 1.86981 1.93993 2.01268 2.08815 2.09378 2.51017 3.0% 4.0% 1.04000 1.08160 1.12486 1.16986 1.21665 1.26532 1.31593 1.36857 1.42331 1.48024 1.53945 1.60103 1.66507 1.73168 1.80094 1.87298 1.94790 2.02582 2.10685 2.19112 2.66584 4.25% 1.04250 1.08681 1.13300 1.18115 1.23135 1.28368 1.33824 1.39511 1.45440 1.51621 1.58065 1.64783 1.71786 1.79087 1.86699 1.94633 2.02905 2.11529 2.20519 2.29891 2.83075 5.0% 1.05000 1.10250 1.15763 1.21551 1.27628 1.34010 1.40710 1.47746 1.55133 1.62889 1.71034 1.79586 1.88565 1.97993 2.07893 2.18287 2.29202 2.40662 2.52695 2.65330 3.38635 6.0% 1.06000 1.12360 1.19102 1.26248 1.33823 1.41852 1.50363 1.59385 1.68948 1.79085 1.89830 2.01220 2.13293 2.26090 2.39656 2.54035 2.69277 2.85434 3.02560 3.20714 4.29187 7.0% 8.0% 1.07000 1.08000 1.14490 1.16640 1.22504 1.25971 1.31080 1.36049 1.40255 1.46933 1.50073 1.58687 1.60578 1.71382 1.71819 1.85093 1.83846 1.99900 1.96715 2.15892 2.10485 2.33164 2.25219 2.51817 2.40985 2.71962 2.57853 2.93719 2.75903 3.17217 2.95216 3.42594 3.15882 3.70002 3.37993 3.99602 3.61653 4.31570 3.86968 4.66096 5.42743 6.84848 9.0% 1.09000 1.18810 1.29503 1.41158 1.53862 1.67710 1.82804 1.99256 2.17189 2.36736 2.58043 2.81266 3.06580 3.34173 3.64248 3.97031 4.32763 4.71712 5.14166 5.60441 8.62308 10.0% 1.10000 1.21000 1.33100 1.46410 1.61051 1.77156 1.94872 2.14359 2.35795 2.59374 2.85312 3.13843 3.45227 3.79750 4.17725 4.59497 5.05447 5.55992 6.11591 6.72750 10.83471 25.0% 12.0% 1.12000 1.25440 1.40493 1.57352 1.76234 1.97382 2.21068 2.47596 13.0% 1.13000 1.27690 1.44290 1.63047 1.84244 2.08195 2.35261 2.65844 2.77308 3.00404 3.25195 11.0% 14.0% 15.0% 20.0% 1.11000 1.14000 1.15000 1.20000 1.25000 1.23210 1.29960 1.32250 1.44000 1.56250 1.36763 1.48154 1.52088 1.72800 1.95313 1.51807 1.68896 1.74901 2.07360 2.44141 1.68506 1.92541 2.01136 2.48832 3.05176 1.87041 2.19497 2.31306 2.98598 3.81470 2.07616 2.50227 2.66002 3.58318 4.76837 2.30454 2.85259 3.05902 4.29982 5.96046 2.55804 3.51788 5.15978 7.45058 2.83942 3.10585 3.39457 3.70722 4.04556 6.19174 9.31323 3.15176 3.47855 3.83586 4.22623 4.65239 7.43008 11.64153 3.49845 3.89598 4.33452 4.81790 5.35025 8.91610 14.55192 3.88328 4.36349 4.89801 5.49241 6.15279 10.69932 18.18989 4.31044 4.88711 5.53475 6.26135 7.07571 12.83918 22.73737 4.78459 5.47357 6.25427 7.13794 8.13706 15.40702 28.42171 5.31089 6.13039 7.06733 8.13725 9.35762 18.48843 35.52714 5.89509 6.86604 7.98608 9.27646 10.76126 22.18611 44.40892 6.54355 7.68997 9.02427 10.57517 12.37545 26.62333 55.51115 7.26334 8.61276 10.19742 12.05569 14.23177 31.94800 69.38894 8.06231 9.64629 11.52309 13.74349 16.36654 38.33760 86.73617 13.58546 17.00006 21.23054 26.46192 32.91895 95.39622 264.69780
Transcribed Image Text:Future Value of $1 n 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 25 1.0% 1.01000 1.02010 1.03030 1.04060 1.05101 1.06152 1.07214 1.08286 1.09369 1.10462 1.11567 1.12683 1.13809 1.14947 1.16097 1.17258 1.18430 1.19615 1.20811 1.22019 1.28243 2.0% 1.02000 1.04040 1.06121 1.08243 1.10408 1.12616 1.14869 1.17166 1.19509 1.21899 1.24337 1.26824 1.29361 1.31948 1.34587 1.37279 1.40024 1.42825 1.45681 1.48595 1.64061 1.03000 1.06090 1.09273 1.12551 1.15927 1.19405 1.22987 1.26677 3.75% 1.03750 1.07641 1.11677 1.15865 1.20210 1.24718 1.29395 1.34247 1.30477 1.39281 1.34392 1.38423 1.42576 1.46853 1.51259 1.55797 1.60471 1.65285 1.70243 1.75351 1.80611 1.44504 1.49923 1.55545 1.61378 1.67430 1.73709 1.80223 1.86981 1.93993 2.01268 2.08815 2.09378 2.51017 3.0% 4.0% 1.04000 1.08160 1.12486 1.16986 1.21665 1.26532 1.31593 1.36857 1.42331 1.48024 1.53945 1.60103 1.66507 1.73168 1.80094 1.87298 1.94790 2.02582 2.10685 2.19112 2.66584 4.25% 1.04250 1.08681 1.13300 1.18115 1.23135 1.28368 1.33824 1.39511 1.45440 1.51621 1.58065 1.64783 1.71786 1.79087 1.86699 1.94633 2.02905 2.11529 2.20519 2.29891 2.83075 5.0% 1.05000 1.10250 1.15763 1.21551 1.27628 1.34010 1.40710 1.47746 1.55133 1.62889 1.71034 1.79586 1.88565 1.97993 2.07893 2.18287 2.29202 2.40662 2.52695 2.65330 3.38635 6.0% 1.06000 1.12360 1.19102 1.26248 1.33823 1.41852 1.50363 1.59385 1.68948 1.79085 1.89830 2.01220 2.13293 2.26090 2.39656 2.54035 2.69277 2.85434 3.02560 3.20714 4.29187 7.0% 8.0% 1.07000 1.08000 1.14490 1.16640 1.22504 1.25971 1.31080 1.36049 1.40255 1.46933 1.50073 1.58687 1.60578 1.71382 1.71819 1.85093 1.83846 1.99900 1.96715 2.15892 2.10485 2.33164 2.25219 2.51817 2.40985 2.71962 2.57853 2.93719 2.75903 3.17217 2.95216 3.42594 3.15882 3.70002 3.37993 3.99602 3.61653 4.31570 3.86968 4.66096 5.42743 6.84848 9.0% 1.09000 1.18810 1.29503 1.41158 1.53862 1.67710 1.82804 1.99256 2.17189 2.36736 2.58043 2.81266 3.06580 3.34173 3.64248 3.97031 4.32763 4.71712 5.14166 5.60441 8.62308 10.0% 1.10000 1.21000 1.33100 1.46410 1.61051 1.77156 1.94872 2.14359 2.35795 2.59374 2.85312 3.13843 3.45227 3.79750 4.17725 4.59497 5.05447 5.55992 6.11591 6.72750 10.83471 25.0% 12.0% 1.12000 1.25440 1.40493 1.57352 1.76234 1.97382 2.21068 2.47596 13.0% 1.13000 1.27690 1.44290 1.63047 1.84244 2.08195 2.35261 2.65844 2.77308 3.00404 3.25195 11.0% 14.0% 15.0% 20.0% 1.11000 1.14000 1.15000 1.20000 1.25000 1.23210 1.29960 1.32250 1.44000 1.56250 1.36763 1.48154 1.52088 1.72800 1.95313 1.51807 1.68896 1.74901 2.07360 2.44141 1.68506 1.92541 2.01136 2.48832 3.05176 1.87041 2.19497 2.31306 2.98598 3.81470 2.07616 2.50227 2.66002 3.58318 4.76837 2.30454 2.85259 3.05902 4.29982 5.96046 2.55804 3.51788 5.15978 7.45058 2.83942 3.10585 3.39457 3.70722 4.04556 6.19174 9.31323 3.15176 3.47855 3.83586 4.22623 4.65239 7.43008 11.64153 3.49845 3.89598 4.33452 4.81790 5.35025 8.91610 14.55192 3.88328 4.36349 4.89801 5.49241 6.15279 10.69932 18.18989 4.31044 4.88711 5.53475 6.26135 7.07571 12.83918 22.73737 4.78459 5.47357 6.25427 7.13794 8.13706 15.40702 28.42171 5.31089 6.13039 7.06733 8.13725 9.35762 18.48843 35.52714 5.89509 6.86604 7.98608 9.27646 10.76126 22.18611 44.40892 6.54355 7.68997 9.02427 10.57517 12.37545 26.62333 55.51115 7.26334 8.61276 10.19742 12.05569 14.23177 31.94800 69.38894 8.06231 9.64629 11.52309 13.74349 16.36654 38.33760 86.73617 13.58546 17.00006 21.23054 26.46192 32.91895 95.39622 264.69780
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Compensation and Benefits
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS