In: Accounting
In 2016, Jill, age 35, received a job offer with two alternative compensation packages to choose from. The first package offers her $125,000 annual salary with no qualified fringe benefits, requires her to pay $3,200 a year for parking, and pay her life insurance premiums at a cost of $2,100. The second package offers $115,000 annual salary, employer-provided health insurance, annual free parking (worth $310 per month), $212,000 of life insurance (purchasing on her own would have been $2,100 annually), and free flight benefits (she figures that it will save her $6,250 per year). If Jill chooses the first package, she would purchase the health and life insurance benefits herself at a cost of $5,500 annually after taxes and spend another $6,250 in flights while traveling. Assume her marginal tax rate is 28 percent. (Use Exhibit 12-10.) (Round your intermediate computations to the nearest whole dollar amount.) a-1. Which compensation package should she choose? Package 1 offers her $125,000 annual salary with no qualified fringe benefits. Package 2 offers $115,000 annual salary plus health and life insurance benefits. a-2. How much would she benefit in after-tax dollars by choosing this compensation package instead of the other compensation package? b-1. Assume the first package offers $138,000 salary with no qualified benefits instead of $125,000 salary plus benefits. Which compensation package should she choose? Package 1 offers her $138,000 annual salary with no qualified fringe benefits. Package 2 offers $115,000 annual salary plus health and life insurance benefits. b-2. How much would she benefit in after-tax dollars by choosing this package?
a1.
In $ |
In $ |
|
Offer 1 |
Offer 2 |
|
Annual Salary |
125000 |
115000 |
Tax @28% |
35000 |
32200 |
Post Tax Salary |
90000 |
82800 |
Reduction from In hand Salary through out of pocket expenditure | ||
Parking | 3200 | |
Life Insurance cover | 2100 | |
Health Insurance | 3400 | |
Flight Expenses | 6250 | |
Total | 14950 | |
Perks: |
||
Free Parking | 3720 | |
Life Insurance cover | 2100 | |
Free Flight Benefits | 6250 | |
Net In Hand Salary | 75050 |
82800 |
a.2 - She Should Choose Package 2 as its more beneficial than PAckage 1 by $ 7,750
b 1 - Assuming that Package 1 offers $ 138,000
In $ | In $ | |
Offer 1 | Offer 2 | |
Annual Salary | 138000 | 115000 |
Tax @28% | 38640 | 32200 |
Post Tax Salary | 99360 | 82800 |
Reduction from In hand Salary through out of pocket expenditure | ||
Parking | 3200 | |
Life Insurance cover | 2100 | |
Health Insurance | 3400 | |
Total | 8700 | |
Free Parking | 3720 | |
Life Insurance cover | 2100 | |
Net In Hand Salary | 90660 | 82800 |
She should Choose Package 1
b2 - Its more beneficial by $ 7860